TY - JOUR AU - Ellickson,Paul AU - Stern,Scott AU - Trajtenberg,Manuel TI - Patient Welfare and Patient Compliance: An Empirical Framework for Measuring the Benefits from Pharmaceutical Innovation JF - National Bureau of Economic Research Working Paper Series VL - No. 6890 PY - 1999 Y2 - January 1999 UR - http://www.nber.org/papers/w6890 L1 - http://www.nber.org/papers/w6890.pdf N1 - Author contact info: Paul Ellickson Paul B. Ellickson Simon School of Business Administration University of Rochester Rochester, NY 14627 Email: paul.ellickson@simon.rochester.edu E-Mail: paul.ellickson@simon.rochester.edu Scott Stern MIT Sloan School of Management 100 Main Street, E62-476 Cambridge, MA 02142 Tel: 617/253-3053 Fax: 617/253-2660 E-Mail: sstern@mit.edu Manuel Trajtenberg Eitan Berglas School of Economics Tel-Aviv University Tel-Aviv 69978 ISRAEL Tel: 972-3-640-9911 Fax: 972-3-640-9908 E-Mail: manuel@post.tau.ac.il M1 - published as Paul Ellickson, Scott Stern, Manuel Trajtenberg. "Patient Welfare and Patient Compliance -- An Empirical Framework for Measuring the Benefits from Pharmaceutical Innovation," in David M. Cutler and Ernst R. Berndt, editors, "Medical Care Output and Productivity" University of Chicago Press (2001) AB - The main goal of this paper is to develop an empirical framework for evaluating the patient welfare benefits arising from pharmaceutical innovation. Extending previous studies of the welfare benefits from innovation (Trajtenberg, 1990; Hausman, 1996), this paper unpacks the separate choices made by physicians and patients in pharmaceutical decisionmaking and develops an estimable econometric model which reflects these choices. Our proposed estimator for patient welfare depends on (a) whether patients comply with the prescriptions they receive from physicians and (b) the motives of physicians in their prescription behavior. By focusing on compliance behavior, the proposed welfare measure reflects a specific economic choice made by patients. We review evidence that the rate of noncompliance ranges up to 70%, suggesting an important gulf between physician prescription behavior and realized patient welfare. Since physicians act as imperfect but interested agents for their patients, the welfare analysis based on compliance must account for the nonrandom selection of patients into drugs by their physicians. The key contribution of this paper resides in integrating the choices made by both physicians and patients into a unified theoretical framework and suggesting how the parameters of such a model can be estimated from data. ER -