Abstract
We develop and estimate a model of market demand for a new pharmaceutical, whose quality is learned through prescriptions by forward-looking physicians. We use a panel of antiulcer prescriptions from Italian physicians between 1990 and 1992 and focus on a new molecule available since 1990. We solve the model by calculating physicians' optimal decision rules as functions of their beliefs about the new pharmaceutical. According to our counterfactuals, physicians' initial pessimism and uncertainty can have large, negative effects on their propensity to prescribe the new drug and on expected health outcomes. In contrast, subsidizing the new good can mitigate informational losses.
Highlights
An important aspect of economic innovation is the development of new products
Clinical trials and advertising convey information about the quality of a new pharmaceutical, considerable uncertainty remains about its general quality, and about its e¤ect on individual patients.2. Since physicians resolve this uncertainty by prescribing the new drug3 to their patients -namely, by experimentation- the adoption of a new pharmaceutical is closely related to the experimentation process by which physicians gain information
We develop and estimate a dynamic discrete choice model of physician Bayesian learning about the quality of a new drug
Summary
An important aspect of economic innovation is the development of new products. ...rms often devote large amounts of resources to research and development. We develop and estimate a dynamic discrete choice model of physician Bayesian learning about the quality of a new drug. When choosing which drug to prescribe to a particular patient, a forward-looking physician considers the expected outcome for that patient, and the opportunity to learn about the new drug’s quality and use the information on future patients. We assume that when a physician sees a patient, he observes some aspects of her condition This condition is one of the state variables of the problem, as are the mean and variance of the physician’s beliefs about the true quality of new drug, and the price di¤erence between the new and the incumbent drug. These indicate that uncertainty about the new drug’s quality a¤ects physician prescription behavior, because a physician who does not know the drug’s quality does not prescribe it to all the patients who need it.
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