Working Paper: NBER ID: w14718
Authors: Kyna Fong; Michael Schwarz
Abstract: This paper applies ideas from mechanism design to model procurement of prescription drugs. We present a mechanism for government-funded market-driven drug procurement that achieves very close to full static efficiency -- all members have access to all but at most a single drug -- without distorting incentives for innovation.
Keywords: Prescription Drugs; Procurement; Mechanism Design
JEL Codes: D44; I11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| government-funded market-driven procurement mechanism (H57) | near full static efficiency in drug access (D61) |
| government subsidies (H20) | drug prices (P22) |
| government subsidies (H20) | consumer access to drugs (L65) |
| mechanism homogenizes demand among consumers (D16) | reduces deadweight loss (H21) |
| mechanism does not introduce additional distortions to innovation incentives (O31) | socially optimal outcome (D61) |
| budget constraint (D10) | effective competition among drug companies (L13) |
| mechanism achieves efficiency without government setting drug prices (D47) | avoids perverse incentives for manufacturers (L49) |