Does Price Reveal Poor-Quality Drugs? Evidence from 17 Countries
Focusing on 8 drug types on the WHO-approved medicine list, we constructed an original dataset of 899 drug samples from 17 low- and median-income countries and tested them for visual appearance, disintegration, and analyzed their ingredients by chromatography and spectrometry. Fifteen percent of the samples fail at least one test and can be considered substandard. After controlling for local factors, we find that failing drugs are priced 13.6-18.7% lower than non-failing drugs but the signaling effect of price is far from complete, especially for non-innovator brands. The look of the pharmacy, as assessed by our covert shoppers, is weakly correlated with the results of quality tests. These findings suggest that consumers are likely to suspect low quality from market price, non-innovator brand and the look of the pharmacy, but none of these signals can perfectly identify substandard and counterfeit drugs. Indeed, many cheaper non-innovator products pass all quality tests, and are genuine generic drugs.
We would like to thank the Legatum Foundation and Legatum Institute for funding the original research. Dozens of people helped in collecting samples and testing them. In particular we thank, Thompson Ayodele, Franklin Cudjoe, Sujat Khan, BarunMitra, Amir Attaran, Lorraine Mooney and Kimberly Hess, all of whom did us great service. Matt Jensen provided excellent research assistance, and Emel Filiz Ozbay provided helpful comments. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Published in the Journal of Health Economics 30 (2011) 1150-1163 citation courtesy of