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Prescription Drug Advertising and Patient Compliance: A Physician Agency Approach



swp0000.dvi PRESCRIPTION DRUG ADVERTISING AND PATIENT COMPLIANCE: A PHYSICIAN AGENCY APPROACH. By Olivier Armantier∗ and Soiliou Daw Namoro† April 2003 Abstract This paper proposes an analysis of both doctors and patients’ behavior in an agency model that accounts for the interplay between two highly debated health issues: drug advertising toward doctors and/or patients, and the serious problem of patients’ noncompliance with their doctors’ prescriptions. Due to the lack of individual data, we adopt a structural approach inspired from the industrial orga- nization literature. The model is estimated semiparametrically with product level data on the U.S. market for anti-glaucoma drugs. The results show that doctors’ prescriptions are directly influenced by the probability of noncompliance, as well as advertising aimed at both doctors and patients. Advertisement toward patients (respectively, doctors) contributed to (respectively, slowed down) the reduction of the estimated average noncompliance rate. Keywords: Direct-to-consumer advertising, prescription noncompliance, physi- cian agency model, structural econometrics, semiparametric estimation. JEL Classification: I10, L10, 14. We would like to thank Hugo Benitez-Silva, Debra Dwyer, John Hause, Mark Montgomery and Christopher Swann for helpful comments and suggestions, as well as seminars participants at the University of Pittsburgh, the University of Illinois at Urbana-Champaign, and the University of Saskatchewan. We would like to thank IMS Health and CMR for graciously providing the data. All remaining errors are ours. ∗ Dept. of Economics, SUNY at Stony Brook, NY 11794-4384, U.S.A; [email protected] † Dept. of Economics, University of Pittsburgh, PA 15260, U.S.A; [email protected] 1. INTRODUCTION In 1997, the Food and Drug Administration (FDA) simplified the information requirements for direct-to-consumer advertising (DTCA) of prescription drugs. The FDA’s decision contributed to a sharp

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