As part of our effort to reach beyond academic audiences, POPI's three co-directors are working with Oxford University Press to prepare a book-length manuscript (described below) that will appeal to a general business readership.
This paper develops and estimates a model of the role played by information and prices in the exercise of physician authority over pharmaceutical prescribing. While physicians need not have a direct money-related conflict with their patients, physicians may not have sufficient incentives to gather costly information nor to be as price-sensitive as their patients. Indeed, effective prescribing requires both drug-specific learning and patient-specific diagnosis, two information-gathering activities that are both costly for physicians to undertake and for patients to observe. Further, the exercise of physician authority may result in an inefficient level of price-sensitivity, since physicians do not bear direct financial responsibility for their decisions.
Stern and Trajtenberg explore these effects in the context of a prescription-level data set of antidepression therapies for 1993-1994. Variations in the costs and/or returns to information-gathering, the degree of monitoring, or the degree of alignment of financial incentives have an impact on the level of informational investment and/or pricesensitivity by physicians, with effects on observed patterns of prescription behavior. For example, many physicians concentrate their prescribing activities among a very small number of drugs; the strength of this "habit effect," as the authors call it, is correlated with insensitivity to novel clinical findings about the efficacy and side effects of different drugs and sensitivity to advertising and prior market leadership. Further, the authors find that physicians in different institutional environments display markedly different levels of price-sensitivity.
In addition to the agency theory implications, these results suggest that the realized level of patient welfare from pharmaceutical innovation is mediated, in an empirically relevant way, by the exercise of physician authority and the institutions of healthcare finance.
Recent theoretical work by several researchers has triggered a lively theoretical debate about the nature of organizational practice and its relationship to the firm's incentive system. None of this work is explicitly concerned with firm effects. However, in a world of limited information and local problemsolving, the existence of strong complementarities provides a compelling explanation for the existence of firm fixed effects in times of major transition or exogenous shock. If decisionmaking is decentralized and information is limited, the existence of these strong complementarities implies that local learning by any single entity within the firm will not necessarily move the firm towards a new equilibrium, and local experimentation with new techniques may give the "wrong" signals. Decentralization and limited information will thus create an inertial threshold. As long as the benefits of the new equilibrium are not widely known or not very dramatic, an organization may find it difficult to make the change.
Cockburn, Henderson, and Stern focus on fixed effects in pharmaceutical research, and the diffusion of several organizational practices across the industry, including the nature of the incentive system and the ways in which resources are allocated, which are commonly identified with the adoption of the techniques of "science-based" pharmaceutical research or with "rational drug discovery."
The authors show that research productivity is significantly correlated with the degree to which a firm is "pro-publication" or with the degree to which it uses the public-rank hierarchy as a critical element of its internal incentive system. They present alternative hypotheses for variations in the rate of the diffusion of this particular organizational practice across the sample firms, and explore the usefulness of these hypotheses in the context of their data.
One finding is that firms that have enjoyed strong recent successes are less likely to adopt the new practices, as are firms that by some measures have agency "problems" at the board level. But the authors also find that adoption is correlated with variations in product market position and in intellectual capital that are consistent with the new practices having variable costs and benefits across firms. Most intriguingly, perhaps, they find that these factors are very closely intertwined, such that it is very difficult to identify their effects separately. "Fast" adopters differ from "slow" adopters on a number of important dimensions, suggesting that the "firm effect" demonstrated by the adoption of the new organizational practices may be deeply rooted in the structure of the firm's organization.
Marketing plays a major role in the promotion of pharmaceuticals, and marketing expenditures can range as high as 10 to 20 percent of sales. This makes drugs the most heavily promoted of all manufactured goods. And pharmaceutical firms largely concentrate their marketing efforts in a single form of marketing, which simplifies the analysis of marketing's effects. These two factors make the pharmaceutical industry ideal for studying the role of marketing in product differentiation. Charles King concentrates his investigation on the market for anti-ulcer drugs, which is one of the largest.
The author develops a variant of the discrete choice model of consumer behavior that incorporates the effects of marketing by the firm and its competitors, and that allows marketing to affect the scale of product differentiation. Using a panel of monthly data on four anti-ulcer drugs from 1977 to 1993, he estimates the price and marketing elasticities of demand.
The results suggest three primary effects of marketing during this period. First, marketing reduced firms' own price elasticities of demand. Second, total marketing by all firms reduced the degree of product differentiation in the market and raised the cost of entry to potential competitors. Third, marketing initially expanded the market for anti-ulcer drugs, but later became an increasingly important means of stealing business from competitors.
Starting from the premise that improved at-work productivity results from better health, the authors develop the elements of a framework to help identify illnesses that can be targets of opportunity for incremental additional investments in workplace health that could result in tangible economic returns to employers. The goal is to enhance productivity by reducing absenteeism and at-work impairment associated with ill health.
The authors discuss three different contexts that illustrate how the framework might be used. The initial focus is on a hypothetical workforce, where the main issue is targeting illnesses whose treatment would lead to better at-work performance. Next, they describe a similar approach using data from a large, public-domain database that captures employee absenteeism due to ill health. Finally, the authors present an illustrative calculation an employer could use to evaluate opportunities to recover benefits in its own workforce.
The paper notes that targeted investments will make sense for some diseases and treatments, but for others will not be beneficial in net economic returns. Further, the authors advise that employers need not necessarily bear the full burden of investment risk, suggesting that employees and employers could engage in risk-sharing arrangements through various forms of co-payment requirements, or through cost-sharing with health providers or the manufacturers of drugs or medical equipment.
The framework presented goes beyond simply providing conceptual tools to identify target opportunities. It also suggests methods of quantifying the value of workplace losses due to chronic illness in particular settings-an important contribution, since realizing the opportunities would become much more likely if employers did not have to rely on rough estimates.
This paper focuses on a relatively neglected element of the overall impact of health on workplace productivity: the relationship between health status and the perception of employees while at work. Typically, workplace impacts have consisted of foregone productivity and income due to reduced hours, days, and or/years at work, rather than impairment while at work.
Underlying the analysis are relationships between interventions that have a medical effect and change an individual's health status, the resulting change in that individual's performance or productivity (all of which can occur over a relatively short period, such as months), and the resulting labor market outcomes such as changes in wages, employment status, schooling, or occupation (which may take considerably longer). The authors focus on the relatively short-run relationship between changes in health status and productivity for two groups of chronically depressed individuals.
One of the central findings of the authors is that the at-work performance of chronically depressed patients improves along with a reduction in the severity of their depressive symptoms. Several models were constructed to document this finding-all of which strongly support the central hypotheses that the level of perceived work performance is negatively related to the severity of the depressive status, and that a reduction in depressive severity also improves the patient's perception of work performance. The researchers also find that improvement in perceived work performance is rapid, with about twothirds of the improvement occurring by week four. This suggests that even in the short run employers clearly have a substantial productivity stake in the mental health status of their employees and in ensuring that they are provided appropriate diagnoses and treatment.
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