Universal Access, Parallel Trade and Incentives to Innovate

18 Pages Posted: 21 Jan 2015

See all articles by Rajat Acharyya

Rajat Acharyya

Jadavpur University - Department of Economics

María D. C. García‐Alonso

University of Kent, Canterbury

Date Written: December 2014

Abstract

Governments often subsidize poorer groups in society to ensure their access to new drugs. We analyse the optimal income‐based price subsidies in a strategic environment. We show that universal access is less likely to arise when price arbitrage prevents international price discrimination. When this is not the case, under some income ranges, bilateral universal coverage can be supported by equilibrium subsidies together with bilateral partial provision. In such a case, international health policy coordination becomes relevant. We also show that asymmetric universal access to medicines across countries can arise, even when countries are ex ante symmetric, when international price discrimination is possible and governments cannot design subsidies proportional to either income or quality.

Keywords: health systems, income based subsidies, innovation, pharmaceuticals, price discrimination

JEL Classification: D4, I1, L1

Suggested Citation

Acharyya, Rajat and Garcia-Alonso, Maria Carmen, Universal Access, Parallel Trade and Incentives to Innovate (December 2014). Bulletin of Economic Research, Vol. 66, Issue S1, pp. S74-S91, 2014, Available at SSRN: https://ssrn.com/abstract=2552957 or http://dx.doi.org/10.1111/boer.12013

Rajat Acharyya (Contact Author)

Jadavpur University - Department of Economics ( email )

188, Raja S.C. Mallick Rd, Kolkata 700032
Calcutta, West Bengal 700032
India
91-33-472-6382 (Phone)

Maria Carmen Garcia-Alonso

University of Kent, Canterbury ( email )

Canterbury, Kent CT2 7NZ
United Kingdom

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