John E. Calfee

The value of automobile travel time: implications for congestion policy

Abstract Public policy has remained stoutly resistant to the economic professions call to use congestion tolls to minimize the social costs from automobile congestion. This paper explores this issue by using stated preference models to estimate the value that commuters are willing to pay to save travel time. We find that this value is low and surprisingly insensitive to travel conditions and how toll revenues are used. It appears that even high-income commuters, having adjusted to congestion through their modal, residential, workplace, and departure time choices, simply do not value travel time savings enough to benefit substantially from tolls.

Public Policy Issues in Direct-to-Consumer Advertising of Prescription Drugs

In August 1997, the Food and Drug Administration (FDA) announced a reinterpretation of its rules on direct-to-consumer (DTC) advertising, the effect of which was to permit branded broadcast advertisements and therefore to increase the volume of DTC advertising several-fold. A substantial body of research, consisting primarily of consumer surveys, provides the basis for a preliminary assessment of the effects of DTC advertisements. The FDAs own assessment, that DTC advertisements can provide substantial benefits and do not appear to cause substantial harm, is consistent with survey and other data. Direct-to-consumer advertisements appear to provide valuable information (including risk information); induce information-seeking (mainly from physicians); prompt patients to discuss conditions not previously discussed; and generate significant, positive externalities including the possibility of improved patient compliance with drug therapy. The effects of DTC advertisements on drug consumption and on health care have yet to be assessed. The author suggests that a further relaxation of FDA rules would accelerate the dissemination of valuable information, with favorable consequences for drug development and consumer health.

Direct‐to‐Consumer Advertising and the Demand for Cholesterol‐Reducing Drugs*

In August 1997, the Food and Drug Administration (FDA) reinterpreted its advertising regulations to ease limits on the use of broadcast media when advertising prescription drugs directly to consumers. We estimate the effect of direct‐to‐consumer advertising on demand, using 1995–2000 data from the market for the statin class of cholesterol‐reducing drugs. We find no statistically significant effect from any form of advertising and promotion on new statin prescriptions or renewals and no evidence of adverse market effects from advertising or the FDA policy change. We did find evidence, however, that television advertising increased the proportion of cholesterol patients who had been successfully treated, which suggests that advertising reinforces compliance with drug therapy.

Direct-to-consumer advertising of prescription medicines in the United States and New Zealand: an analysis of regulatory approaches and consumer responses

New Zealand and the United States are the only two advanced nations to permit direct-to-consumer advertising (DTCA) of prescription medicines, but they use very different regulatory regimes. This paper examines the evolution of DTCA in both countries, compares the New Zealand self-regulatory model with regulation by the US Food and Drug Administration, and examines consumer survey results from both nations. Surveys reveal striking consistencies in overall attitudes towards DTCA, albeit with strong differences on a few topics directly affected by differences in regulations, such as the balance of risk and benefit information. Consumers think DTCA helps them learn about new drugs and talk to their doctors about possible treatments, with little apparent negative impact on patient.doctor communications. Regulation in New Zealand is more efficient than American regulation, although more effective disclosure of risk information could address concerns raised by New Zealand consumer groups.

The Influence of Advertising on Alcohol Consumption: A Literature Review and An Econometric Analysis of Four European Nations

Econometric and laboratory research in the US, Canada and the UK have not revealed advertising to have a significant effect on alcohol consumption. The same is true of survey research, which confirms the powerful role of social factors such as the attitudes and behaviour of parents and peers. We present an econometric analysis of the alcoholic beverage markets of France, Germany, the Netherlands, Sweden (where alcohol advertising has been prohibited since 1979), as well as a new analysis of the UK market. The results provide further support for the view that advertising does not have a substantial effect on alcohol sales. The data also show that social forces other than prices and income were bringing about a strong reduction in demand for alcoholic beverages during the 1970s and 1980s, and that advertising did nothing to ward off this trend.

The Role of Marketing in Pharmaceutical Research and Development

Pharmaceutical marketing, which is primarily targeted at physicians, has been criticised because it may distort physician prescribing and thus potentially raise costs and/or worsen health. An alternative view, presented in this paper, is that successful marketing of pharmaceuticals can improve consumer welfare by increasing incentives for research and development (R&D) investment and by providing guidance to R&D to make it more consistent with consumer preferences. There are a number of arguments that support this view, despite impediments to pharmaceutical marketing such as the prohibited dissemination of off-label information in the US, difficulties in estimating potential pharmaceutical demand, and the long time lag between demand assessment and the introduction of new drugs. For example, physicians are often slow to modify their prescribing practices, even when new evidence-based practice guidelines are issued by prestigious organisations. Pharmaceutical promotion is likely to be particularly valuable because information plays a key role, is highly technical, and can change rapidly. Even consumer advertising can potentially improve health, for example, by improving patient compliance with drug therapy. In addition to disseminating information about the benefits of new therapies, an essential (and perhaps unique) role for pharmaceutical promotion is to encourage physicians and payers to pay closer attention to consumer needs (i.e. willingness to pay) for new medical technology. Moreover, successful marketing of pharmaceuticals increases the returns from R&D, thus increasing incentives to explore consumer demand and to contribute to basic research on the role of drug therapy. Consumer benefits from this process may be very large.

The Historical Significance of Joe Camel

The Joe Camel advertising campaigns had little or no effect on smoking by youths or adults beyond shifting brand shares among younger smokers. The advertisements appear to have wielded substantial influence on the larger political and legal environment, however. This influence was transmitted first through the lens of pronouncements by the public health community, including the Food and Drug Administration, which helped shape public opinion toward the view that cigarette advertising causes smoking. This, in turn, provided essential support for the unprecedented wave of litigation that engulfed the industry and has relied primarily on nonpublic industry documents rather than market data. The extent of Joe Camels indirect influence has not been quantified but appears to have been substantial.

The Consumer Welfare Effects of Liability for Pain and Suffering: An Exploratory Analysis

A SURGE IN LIABILITY PAYMENTS since the 1960s and periodic crises in the liability insurance market have generated much concern about the products liability system. Indeed, the so-called tort tax, estimated to be in the hundreds of billions of dollars, has been cited as a serious impediment to Americas competitiveness. Criticisms of the system have tended to focus on unexpected increases in the size and scope of liability awards, on the inefficiencies inherent in using the liability system as an insurance or compensation mechanism, and on the possible imperfections in the insurance industry itself.1 Attention has recently turned to the potential problems caused by awarding nonpecuniary damages-commonly referred to as compensation for pain and suffering. These awards have played a large role in tort payments. Data collected in 1977 indicated that pain and suffering accounted for some 30-57 percent of the amounts awarded by juries in personal injury suits, with these proportions varying according to the nature of the injury.2 There is little reason to think this proportion has declined during the past fifteen years of steady increases in tort

Pharmaceuticals and the Worldwide HIV Epidemic: Can a Stakeholder Model Work?

The worldwide HIV/AIDS epidemic has generated intense criticism of pharmaceutical drug prices, a natural consequence of the industrys unique cost structure. Many people have proposed that the industry adopt what might be called a stakeholder model in place of the traditional profit-driven model. However, the rapid drop in HIV drug prices, combined with generic entry and de facto abandonment of patent rights, has revealed the extremely limited role of drug prices and access in the face of fundamental problems in infrastructure, prevention, and other essential elements in battling HIV/AIDS. Adoption of a stakeholder approach is likely to undermine essential research and development while doing little to curtail the HIV/AIDS epidemic.

The Increasing Necessity for Market-Based Pharmaceutical Prices

In most markets, research and development are driven by expected prices, and those prices are determined mainly by consumer willingness to pay for the potential benefits of new products. In the pharmaceutical market, however, the dominant role of government and tax-induced insurance has tended to create a wedge between expected prices and consumer willingness to pay to cure or prevent disease. This distorts investment decisions, tending to cause underinvestment. Recent developments have expanded this gap. The greatly enhanced efficiency of pharmaceutical research has permitted the development of products that provide long term prevention and quality-of-life improvements. While some of these new products can delay or obviate chronic conditions of old age, they do not necessarily reduce healthcare costs (at least not in the short or medium run). Most of the massive benefits of the new research streams are therefore pure consumer benefits, with little benefit for the acute care activities that are the core functions of European and American healthcare delivery or payment systems.These new products are very expensive, despite increased research efficiency, because that efficiency has permitted the industry to address difficult problems that had previously been impervious to solution. To serve consumers well, healthcare providers would have to increase expenditures and prices or taxes to cover these added pharmaceutical costs. But the new products are likely to be perceived mainly as cost increases. The effect is that healthcare entities will become less suited to serve as agents for consumers. One reason is that the most natural, reliable and widely used metrics for evaluating new drugs — healthcare savings and acute care improvements — will be increasingly irrelevant. The implication is that, to a much greater extent than in the past, only market-determined prices can provide adequate signals for future pharmaceutical research investment. The failure to use market prices could deprive consumers of very large future benefits.