Privacy, Driving Data and Automobile Insurance: An Economic Analysis

With new technologies that enable insurers to electronically monitor vehicles and drivers, insurers should be able to price automobile insurance more accurately, creating individualized prices for consumers. The welfare effects of lower prices are straightforward, but we also consider that consumers have heterogeneous valuations of privacy that they may lose if they adopt the monitoring technologies. We examine the voluntary market adoption of these monitoring technologies and its effect on equilibrium prices and welfare. We find a welfare effect equal to the loss in privacy, but conclude that the overall effect is ambiguous without considering moral hazard.Insurance, Privacy

Generic Drug Pricing and Procurement: A Policy for Alberta

Canadians pay very high prices for generic drugs compared to interna onal norms. The reason is not ineffi  cient or uncompe  ve generic drug companies, but provincial government pricing and insurance policies that are distor ng the market. This paper by Professor Aidan Hollis, an expert in the economics of pharmaceu cal markets, evaluates provincial government policies regarding generic drugs and proposes a new approach which could save governments and private insurers tens of millions of dollars a year

An Economic Justification for Open Access to Essential Medicine Patents in Developing Countries

This paper offers an economic rationale for compulsory licensing of needed medicines in developing countries. The patent system is based on a trade-off between the “deadweight losses” caused by market power and the incentive to innovate created by increased profits from monopoly pricing during the period of the patent. However, markets for essential medicines under patent in developing countries with high income inequality are characterized by highly convex demand curves, producing large deadweight losses relative to potential profits when monopoly firms exercise profit-maximizing pricing strategies. As a result, these markets are systematically ill-suited to exclusive marketing rights, a problem which can be corrected through compulsory licensing. Open licenses that permit any qualified firm to supply the market on the same terms, such as may be available under licenses of right or essential facility legal standards, can be used to mitigate the negative effects of government-granted patents, thereby increasing overall social welfare

Combating Antibiotic Resistance Through the Health Impact Fund

The Health Impact Fund (Hollis & Pogge 2008) is an innovative financing mechanism for global drug discovery and dissemination, separating the reward for successful R&D from the market price of the drug, also known as de-linkage. Aaron Kesselheim and Kevin Outterson have recently proposed a mechanism to reimburse companies for antibiotics according to their social value, but conditioned on achieving conservation goals to limit resistance (Kesselheim & Outterson 2010, 2011). This paper will explore whether this antibiotic resistance conservation proposal can be adapted to the framework of the Health Impact Fund. If these proposals can be meshed, then antibiotics might be an interesting therapeutic class for a test of the Health Impact Fund

Making Sure Orphan Drugs Don’t Get Left Behind

Orphan drugs developed to treat rare diseases are expensive, thus making it difficult for provincial governments to cover their costs and for patients to acquire them. However, a streamlined method of setting guidelines for coverage using a cost-based regulatory model could help patients get access to the drugs while ensuring manufacturers are fairly compensated. Currently, governments can justify covering cost-effective drugs. Manufacturing costs, including research and development, typically put orphan drugs over any threshold of cost-effectiveness because so few patients use them. Thus, governments either decline coverage or end up funding the drugs under pressure from patient advocacy groups. Without adequate compensation for their efforts, manufacturers will have no incentive to develop orphan drugs. A cost-based regulatory model, including yardstick pricing, would improve access to orphan drugs because it creates incentives for companies to lower their costs. Yardsticking means that prices are set using industry benchmarks and firms that successfully lower their costs below those of competitors can profit by it. Under this system, the government could still apply an initial cost-effectiveness test. In cases where that threshold is not met, the cost-based regulatory model would be used to decide upon the maximum price at which the drug would be covered. This would be done through an estimated, benchmarked, capital cost based on the average cost of drug development across the pharmaceutical industry, and take into consideration the probability of success. Such an approach would allow governments to bargain over a drug’s price, yet still create incentives for companies to develop orphan drugs at the lowest possible costs

Privacy, Driving Data and Automobile Insurance: An Economic Analysis

With new technologies that enable insurers to electronically monitor vehicles and drivers, insurers should be able to price automobile insurance more accurately, creating individualized prices for consumers. The welfare effects of lower prices are straightforward, but we also consider that consumers have heterogeneous valuations of privacy that they may lose if they adopt the monitoring technologies. We examine the voluntary market adoption of these monitoring technologies and its effect on equilibrium prices and welfare. We find a welfare effect equal to the loss in privacy, but conclude that the overall effect is ambiguous without considering moral hazard

Privacy, Driving Data and Automobile Insurance: An Economic Analysis

With new technologies that enable insurers to electronically monitor vehicles and drivers, insurers should be able to price automobile insurance more accurately, creating individualized prices for consumers. The welfare effects of lower prices are straightforward, but we also consider that consumers have heterogeneous valuations of privacy that they may lose if they adopt the monitoring technologies. We examine the voluntary market adoption of these monitoring technologies and its effect on equilibrium prices and welfare. We find a welfare effect equal to the loss in privacy, but conclude that the overall effect is ambiguous without considering moral hazard

The path of least resistance: Paying for antibiotics in non-human uses

Antibiotic resistance is a critical threat to human and animal health. Despite the importance of antibiotics, regulators continue to allow antibiotics to be used in low-value applications - subtherapeutic dosing in animals, and spraying tobacco plants for blue mold, for example - where the benefits are unlikely to outweigh the costs in terms of increased resistance. We explore the application of a user fee in non-human uses of antibiotics. Such a fee would efficiently deter low value uses while also providing funding to support the development of the urgently needed new antibiotics

Sustainable Financing of Innovative Therapies: A Review of Approaches

The process of innovation is inherently complex, and it occurs within an even more complex institutional environment characterized by incomplete information, market power, and externalities. There are therefore different competing approaches to supporting and financing innovation in medical technologies, which bring their own advantages and disadvantages. This article reviews value- and cost-based pricing, as well direct government funding, and cross-cutting institutional structures. It argues that performance-based risk-sharing agreements are likely to have little effect on the sustainability of financing; that there is a role for cost-based pricing models in some situations; and that the push towards longer exclusivity periods is likely contrary to the interests of industry