Date of Original Version

9-24-2009

Type

Article

Published In

Economic Inquiry, Forthcoming.

Abstract or Table of Contents

We develop and estimate a model of market demand for a new pharmaceutical, whose quality is learned through prescriptions by forward-looking physicians. We use a panel of anti-ulcer prescriptions from Italian physicians between 1990 and 1992 and focus on a new molecule available since 1990. We solve the model by calculating physicians' optimal decision rules as functions of their beliefs about the new pharmaceutical. According to our counterfactuals, physicians' initial pessimism and uncertainty can have large, negative effects on their propensity to prescribe the new drug and on expected health outcomes. In contrast, subsidizing the new good can mitigate informational losses.