Hannes Ullrich

Regulation of pharmaceutical prices: Evidence from a reference price reform in Denmark

Reference price systems for prescription drugs constitute widely adopted cost containment tools. Under these regimes, patients co-pay a fraction of the difference between a drugs pharmacy retail price and a reference price that is set by the government. Reference prices are either externally (based on drug prices in other countries) or internally (based on domestic drug prices) determined. We study the effects of a change from external to internal reference pricing in Denmark in 2005. We find that the reform led to substantial reductions in retail prices, reference prices and patient co-payments as well as to sizable decreases in overall producer revenues and health care expenditures. The reform induced consumers to substitute away from branded drugs for which we estimate strong preferences. The increase in consumer welfare due to the reform therefore depends on whether or not we take perceived quality differences into account in its calculation.

Career Prospects and Effort Incentives: Evidence from Professional Soccer

It is difficult to test the prediction that future career prospects create implicit effort incentives because researchers cannot randomly “assign” career prospects to economic agents. To overcome this challenge, we use data from professional soccer, where employees of the same club face different external career opportunities depending on their nationality. We test whether the career prospect of being selected to a Euro Cup national team affects players’ pre-cup performances, using nationals of countries that did not participate in the Euro Cup as a control group. We find that the Euro Cup career prospect has positive effects on the performances of players with intermediate chances of being selected to their national team, but negative effects on the performances of players whose selection is very probable. Our findings have implications for the incentive effects of within-firm promotions and of external career opportunities. This paper was accepted by John List, behavioral economics.

Belief Precision and Effort Incentives in Promotion Contests

The career concerns literature predicts that incentives for effort decline as beliefs about ability become more precise (Holmström, 1982/1999). In contrast, we show that effort can increase with belief precision if promotions to better-paid jobs make the returns to reputation non-linear. In this case, an intermediate level of precision provides the strongest incentive for effort, with effort increasing (decreasing) when beliefs are less (more) precise.

Entry and Competition in Freight Transport: The Case of a Prospective Transalpine Rail Link Between France and Italy

We analyze the expected effects of building a rail tunnel between Lyon and Turin on i) the market shares of the established and the new suppliers, and ii) consumer surplus. The prospective project consists of a 53km rail tunnel providing freight shippers with a new alpine path. We calibrate an equilibrium model where freight shippers choose a mode and alpine path to ship goods from a given origin to a given destination. Freight carriers strategically set prices for the differentiated products they supply. Deriving the market equilibrium, we simulate the entry of a quality-improved product and test its competitive viability. The prospective alpine path proves both competitive and welfare-enhancing on the regional market, loses its competitive edge on the wider North-South market, and leads to a modal shift on the West-East market. We argue that the new infrastructure is only one tool out of a global modal shift-oriented policy toolbox.

Consumer welfare and unobserved heterogeneity in discrete choice models: The value of alpine road tunnels

We investigate the sensitivity of consumer surplus estimates to parametric assumptions on individual preference heterogeneity in a discrete choice framework. We compare results from a parametric random coefficients logit model and a recently proposed nonparametric sieve estimator. In particular, we provide an assessment of the direct economic value of crossing the Alps for the European road freight sector. Using revealed preference data from a detailed survey on transalpine road freight traffic, we estimate the yearly cost of closing the Mont-Blanc Tunnel, which was closed for 3 years following a large accident in early 1999. Ultimately, our results permit the economic evaluation of security and transport policy measures affecting transalpine traffic. Our findings suggest that the way we model unobserved heterogeneity significantly affects our welfare results.