Regulatory Competition and Multi-national Banking

This paper focuses on the consequences of cross-border banking and entry of multi-national banks (MNBs) for banking supervision and regulation. When a MNB expands internationally with subsidiaries, the MNB operates under the legislation of several countries - both the home country and the host countries. Although these countries have agreed upon minimum standards and supervisory principles, such as in the EU directives or the Basle Accords, substantial degrees of freedom are still left to the national regulators. An important issue is whether the decentralized approach to regulation of MNBs creates inefficiencies and financial instability. We show that lack of international coordination of regulation towards MNB-subsidiaries works to lower capital adequacy requirements. In equilibrium, however, regulators respond by increasing the incentives to improve asset quality, making the probability of banking failure insensitive to the decentralized nature of banking regulation. Ownership of the MNB is shown to be of importance for the outcome of regulatory competition. Finally, considering branch-organized MNBs, we derive comparative results with respect to regulatory policy and MNBs‘ preferred form of representation.banking regulation, multi-national banks, common-agency

Price regulation and generic competition in the pharmaceutical market

In March 2003 the Norwegian government implemented yardstick based price regulation schemes on a selection of drugs experiencing generic competition. The retail price cap, termed “index price”, on a drug (chemical substance) was set equal to the average of the three lowest producer prices on that drug, plus a fixed wholesale and retail margin. This is supposed to lower barriers of entry for generic drugs and to trigger price competition. Using monthly data over the period 1998-2004 for the 6 drugs (chemical entities) included in the index price system, we estimate a structural model enabling us to examine the impact of the reform on both demand and market power. Our results suggest that the index price helped to increase the market shares of generic drugs and succeeded in triggering price competition.Discrete choice; demand for pharmaceuticals; monopolistic competition; evaluation of yardstick based price regulation

Choosing among Competing Blockbusters: Does the Identity of the Third-Party Payer Matter for Prescribing Doctors?

TNF-alpha inhibitors represent one of the most important areas of biopharmaceuticals by sales, with three blockbusters accounting for 8 % of total pharmaceutical sale in Norway. With use of a unique natural policy experiment in Norway, this paper examines to what extent the identity of the third-party payer affects doctors’ choice between the three available drugs. We are able to investigate to what extent the price responsiveness of prescription choices is affected when the identity of the third-party payer changes. The three dominating drugs in this market, Enbrel, Remicade, and Humira, are substitutes, but have had different and varying funding schemes - hospitals and the national insurance plan. We find that treatment choices are price responsive, and that the price response is considerably higher when the doctor’s affiliated hospital covers the cost instead of a traditional fee-for-service insurance plan. When the doctors’ hospitals are covering the cost of this treatment instead of insurance the total cost of treatment is significantly reduced.pharmaceuticals, discrete choice model, funding-schemes

Longitudinal Analysis of Generic Substitution

Using an extensive longitudinal dataset extracted from the Norwegian Prescription Database (NorPD) containing all prescriptions written in the period January 2004 to June 2007, we selected two particular drugs (chemical substances) used against cholesterol. The two brand-name products on the Norwegian markets were Provachol (atc code C10AA03) and Zocor (atc code C10AA01). The generics are Provastatine and Simastatine. The model accounts for taste persistence and is estimated on panel data. We find that prices have a negative impact on transitions in the sense that an increase in the brand price will reduce the transition from generics to brand and likewise an increase in the generic price will reduce the transition from brand to generics.generics, substitution, microdata, random utility model, longitudinal data

Regulatory Competition and Multi-national Banking

This paper focuses on the consequences of cross-border banking and entry of multi-national banks (MNBs) for banking supervision and regulation. When a MNB expands internationally with subsidiaries, the MNB operates under the legislation of several countries - both the home country and the host countries. Although these countries have agreed upon minimum standards and supervisory principles, such as in the EU directives or the Basle Accords, substantial degrees of freedom are still left to the national regulators. An important issue is whether the decentralized approach to regulation of MNBs creates inefficiencies and financial instability. We show that lack of international coordination of regulation towards MNB-subsidiaries works to lower capital adequacy requirements. In equilibrium, however, regulators respond by increasing the incentives to improve asset quality, making the probability of banking failure insensitive to the decentralized nature of banking regulation. Ownership of the MNB is shown to be of importance for the outcome of regulatory competition. Finally, considering branch-organized MNBs, we derive comparative results with respect to regulatory policy and MNBs preferred form of representation

Designing Competition in Health Care Markets

In this paper we propose a simple, market based mechanism to set prices in health care markets, namely a system where the patients are auctioned out to the hospitals. Our aim is to characterize principles as to how such an auction should be designed. In the case of elective treatment, health authorities thus organize a competition between hospitals. The hospital with the lowest price signs a contracts with authority (or the insurer) that commits him to treat a given number of patients within a predetermined period. However, this is not a simple mechanism that identi…es the hospital with the lowest treatment cost. Due to potentially rapid and unpredictable shifts in demand, treatment capacity may be hard to know in advance. There is always a risk that treatment must be canceled due to arrival of patients that require acute treatment. This calls for a market design that accounts for the risk of default. Our main result is that the expected cost for the government is reduced if the government chooses to ”subsidize” default. This could be thought of as a system in which the government buys treatment in the spot market in the case of default, and let the hospital pay a default fee that is lower than the spot price. The reason why this reduces expected costs for the government is that the e¤ect on the bids is asymmetric: The second lowest bid is on average reduced more than the winning bid. Hence, the winner’s profit tends to shrink. This is due to what we characterize an endogenous correlation. Since the cost of treatment increases in the default risk (as the hospital must pay a penalty if it defaults), high cost hospitals typically have larger default risks than low costs hospitals.Health care markets; health care; hospitals; competition

Politicians and soft budget constraints

We study soft budget constraints from the perspective of political economics. A partly partisan government confronts a budget crisis in a politically important sector, e.g. like the health care sector. To what extent the government wants to make additional grants to the sector depends on economic conditions and on the preferences of the government, both unknown to the electorate. Thus, the government’s budget response gives a signal of its preferences, and may thereby influence the probability that the government is re-elected. As a result, the handeling of a budget crisis becomes inefficient even from an ex post point of view, in the sense that it does not react adequately to changing economic conditions.Political economics; budget constraints; budget crisis

A Probability Approach to Pharmaceutical Demand and Price Setting: Does the Identity of the Third-Party Payer Mattersfor Prescribing Doctors?

TNF-alpha inhibitors represent one of the most important areas of biopharmaceuticals by sales, with three blockbusters accounting for 8 per cent of total pharmaceutical sale in Norway. Novelty of the paper is to examine, with the use of a unique natural policy experiment in Norway, to what extent the price responsiveness of prescription choices is affected when the identity of the third-party payer changes. The three dominating drugs in this market, Enbrel, Remicade, and Humira, are substitutes, but have had different and varying funding schemes - hospitals and the national insurance plan. A stochastic structural model for the three drugs, covering demand and price setting, is estimated in a joint maximum likelihood approach. We find that doctors are more responsive when the costs are covered by the hospitals compared to when costs are covered by national insurance.pharmaceuticals, discrete choice model, funding-schemes

Legemiddelmarkedet etter apotekreformen: Regulering, markedsstruktur og konkurranse

Rapporten beskriver utviklingen i legemiddelmarkedet etter apotekreformen og peker på styrker og svakheter ved dagens markedsregime. Hovedvekten legges på å beskrive utviklingen i apotekstruktur og –økonomi, priser og reguleringsutfordringer etter apotekreformen.Legemiddel; konkurranse; gernerika; apotekreformen

Choosing among competing blockbusters: Does the identity of the third-party payer matter for prescribing doctors?

TNF-alpha inhibitors represent one of the most important areas of biopharmaceuticals by sales, with three blockbusters accounting for 8 % of total pharmaceutical sale in Norway. With use of a unique natural policy experiment in Norway, this paper examines to what extent the identity of the third-party payer affects doctors choice between the three available drugs. We are able to investigate to what extent the price responsiveness of prescription choices is affected when the identity of the third-party payer changes. The three dominating drugs in this market, Enbrel, Remicade, and Humira, are substitutes, but have had different and varying funding schemes - hospitals and the national insurance plan. We find that treatment choices are price responsive, and that the price response increases when the doctor's affiliated hospital covers the cost instead of a traditional fee-for-service insurance plan