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11. WHO Technical Report on Cancer Pricing Misses the Mark—It Should Focus on the “Demand Side”

Author:
Kalipso Chalkidou, Adrian Towse, and Richard Sullivan
Publication Date:
04-2019
Content Type:
Working Paper
Institution:
Center for Global Development (CGD)
Abstract:
Criticising cancer medicine pricing as too high is what football fans know as an "open goal"—a target that is hard to miss. Yet somehow the World Health Organization (WHO) Technical Report on Cancer Pricing manages to do just that with a paper to the WHO Executive Board calling for price and cost transparency. The assumption goes that transparency will reduce the prices and costs of cancer medicines, a mantra that has united the Trump administration, the US Congress, and the Italian health minister with many NGOs who have called for “greater cost and price transparency”—a sentiment echoed by KEI, which states that “international action is required to improve transparency in reporting the costs of R&D and production, including public sources of funding.”
Topic:
World Health Organization, Health Care Policy, Medicine, Cancer, and Price
Political Geography:
Global Focus

12. Pooled Procurement of Drugs in Low and Middle Income Countries

Author:
Pierre Dubois, Yassine Lefouili, and Stephane Straub
Publication Date:
04-2019
Content Type:
Working Paper
Institution:
Center for Global Development (CGD)
Abstract:
We use data from seven low and middle income countries with diverse drug procurement systems to assess the effect of centralized procurement on drug prices and provide a theoretical mechanism that explains this effect. Our empirical analysis is based on exhaustive data on drug sales quantities and expenditures over several years for forty important molecules. We find that centralized procurement of drugs by the public sector allows much lower prices but that the induced price reduction is smaller when the supply side is more concentrated.
Topic:
Drugs, Medicine, Centralization, and Price
Political Geography:
Global Focus

13. Who Benefits from Pharmaceutical Price Controls? Evidence from India

Author:
Emma Boswell Dean
Publication Date:
04-2019
Content Type:
Working Paper
Institution:
Center for Global Development (CGD)
Abstract:
With the goal of driving down drug costs, governments across the globe have instituted various forms of pharmaceutical price control policies. Understanding the impacts of such policies is particularly important in low- and middle-income countries, where lack of insurance coverage means that prices can serve as a barrier to access for patients. In this paper, we examine the theoretical and empirical effects of one implementation of pharmaceutical price controls, in which the Indian government placed price ceilings on a set of essential medicines. We find that the legislation resulted in broadly declining prices amongst both directly impacted products and competing products. However, the legislation also led to decreased sales of price-controlled and closely related products, preventing trade that would have otherwise occurred. The sales of small, local generics manufacturers were most impacted by the legislation, seeing a 14.5 percent decrease in market share and a 5.3 percent decrease in sales. These products tend to be inexpensive, but we use novel data to show that they are also of lower average quality. We provide evidence that the legislation impacted consumer types differentially. The benefits of the legislation were largest for quality-sensitive consumers, while the downsides largely affected poor and rural consumers, two groups already suffering from low access to medicines.
Topic:
Medicine, Pharmaceuticals, Price, and Price Control
Political Geography:
Global Focus

14. Approaches to Price Formation in Financialised Commodity Markets

Author:
Sophie van Huellen
Publication Date:
04-2019
Content Type:
Working Paper
Institution:
School of Oriental and African Studies - University of London
Abstract:
A recent debate over the financialisation of commodity markets has stimulated the development of approaches to price formation which incorporate index traders as a new trader category in commodity futures markets. I survey these new approaches by retracing their emergence to traditional price formation models and show that these new models arise from a synthesis between commodity arbitrage pricing and asset pricing theories in the tradition of Keynesian inspired hedging pressure models. Based on these insights, I derive testable hypotheses to provide guidance for a growing literature that seeks to empirically evaluate the effects of index traders on price discovery and risk management in commodity futures markets.
Topic:
Markets, Finance, Investment, Commodities, and Price
Political Geography:
Global Focus

15. Price Discovery in Commodity Futures and Cash Markets with Heterogenous Agents

Author:
Sophie van Huellen
Publication Date:
11-2018
Content Type:
Working Paper
Institution:
School of Oriental and African Studies - University of London
Abstract:
The paper develops a price discovery model for commodity futures markets that accounts for two forms of limits to arbitrage caused by transaction costs and noise trader risk. Four market regimes are identified: (1) effective arbitrage, (2) transaction costs but no noise trader risk, (3) no transaction costs but noise trader risk and (4) both transaction costs and noise trader risk. It is shown that commodity prices are driven by both market fundamentals and speculative trader positions under the latter two regimes. Further, speculative effects spill over to the cash market under regime (3) but are confined to the futures market under regime (4). The model is empirically tested using data from six grain and soft commodity markets. While regime (4) is rare and short lived, regime (3) with some noise trader risk and varying elasticity of arbitrage prevails
Topic:
International Trade and Finance, Markets, Investment, Commodities, and Price
Political Geography:
Global Focus

16. Emissions Trading in the Presence of Price-Regulated Polluting Firms: How Costly Are Free Allowances?

Author:
Bruno Lanz and Sebastian Rausch
Publication Date:
01-2015
Content Type:
Working Paper
Institution:
Centre for International Environmental Studies, The Graduate Institute (IHEID)
Abstract:
We study whether to auction or to freely distribute emissions allowances when some firms participating in emissions trading are subject to price regulation. We show that free allowances allocated to price-regulated firms effectively act as a subsidy to output, distort consumer choices, and generally induce higher output and emissions by price-regulated firms. This provides a cost-effectiveness argument for an auction-based allocation of allowances (or equivalently an emissions tax). For real-world economies such as the Unites States, in which about 20 percent of total carbon dioxide emissions are generated by price-regulated electricity producers, our quantitative analysis suggests that free allowances increase economy-wide welfare costs of the policy by 40-80 percent relative to an auction. Given large disparities in regional welfare impacts, we show that the inefficiencies are mainly driven by the emissions intensity of electricity producers in regions with a high degree of price regulation.
Topic:
Climate Change, Regulation, Electricity, Pollution, and Price
Political Geography:
Global Focus

17. Missing Import Price Changes and Low Exchange Rate Pass-Through

Author:
Etienne Gagnon, Benjamin R. Mandel, and Robert J. Vigfusson
Publication Date:
01-2012
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
A large body of empirical work has found that exchange rate movements have only modest effects on inflation. However, the response of an import price index to exchange rate movements may be underestimated because some import price changes are missed when constructing the index. We investigate downward biases that arise when items experiencing a price change are especially likely to exit or to enter the index. We show that, in theoretical pricing models, entry and exit have different implications for the timing and size of these biases. Using Bureau of Labor Statistics (BLS) microdata, we derive empirical bounds on the magnitude of these biases and construct alternative price indexes that are less subject to selection effects. Our analysis suggests that the biases induced by selective exits and entries are modest over typical forecast horizons. As such, the empirical evidence continues to support the conclusion that exchange rate pass-through to U.S. import prices is low.
Topic:
International Trade and Finance, Exchange Rate Policy, Imports, and Price
Political Geography:
Global Focus

18. Individual Price Adjustment Along the Extensive Margin

Author:
Etienne Gagnon, David López-Salido, and Nicholas Vincent
Publication Date:
08-2012
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
Firms employ a rich variety of pricing strategies whose implications for aggregate price dynamics often diverge. This situation poses a challenge for macroeconomists interested in bridging micro and macro price stickiness. In responding to this challenge, we note that differences in macro price stickiness across pricing mechanisms can often be traced back to price changes that are either triggered or cancelled by shocks. We exploit observed micro price behavior to quantify the importance of this margin of adjustment for the response of inflation to shocks. Across a range of empirical exercises, we find strong evidence that changes in the timing of price adjustments contribute significantly to the flexibility of the aggregate price level.
Topic:
Economics, Monetary Policy, Inflation, and Price
Political Geography:
Global Focus

19. Individual Price Adjustment Along the Extensive Margin

Author:
Etienne Gagnon, David López-Salido, and Nicholas Vincent
Publication Date:
08-2012
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
Firms employ a rich variety of pricing strategies whose implications for aggregate price dynamics often diverge. This situation poses a challenge for macroeconomists interested in bridging micro and macro price stickiness. In responding to this challenge, we note that differences in macro price stickiness across pricing mechanisms can often be traced back to price changes that are either triggered or cancelled by shocks. We exploit observed micro price behavior to quantify the importance of this margin of adjustment for the response of inflation to shocks. Across a range of empirical exercises, we find strong evidence that changes in the timing of price adjustments contribute significantly to the flexibility of the aggregate price level.
Topic:
Economics, Business, Inflation, Macroeconomics, and Price
Political Geography:
Global Focus

20. Commodity Price Movements in a General Equilibrium Model of Storage

Author:
David M. Arseneau and Sylvain Leduc
Publication Date:
08-2012
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
We embed the canonical rational expectations competitive storage model into a general equilibrium framework thereby allowing the non-linear commodity price dynamics implied by the competitive storage model to interact with the broader macroeconomy. Our main result is that the endogenous movement in interest rates implied under general equilibrium enhances the effects of competitive storage on commodity prices. Compared to a model in which the real interest rate is fixed, we find that storage in general equilibrium leads to more persistence in commodity prices and somewhat lower volatility. Moreover, the frequency of stockouts is lower in general equilibrium. A key mechanism driving this result is a link between the ability of the household to smooth consumption over time and the level of storage in the stochasic equilibrium. Finally, the model is used to examine the macroeconomic effects of both biofuel subsidies for ethanol producers and, separately, subsidies designed to insulate households from high food prices.
Topic:
Economics, Food, Commodities, Economic Theory, and Price
Political Geography:
Global Focus