The Price Elasticity of Demand for Pharmaceuticals amongst High Income Older People in Australia: A Natural Experiment

This paper presents estimates of the price elasticity of demand for pharmaceuticals amongst high-income older people in Australia. It exploits a natural experiment by which some people became eligible for a greatly reduced price through a health concession card. Estimation techniques include negative binomial difference-indifference regressions with instrumental variables, as well as propensity score matching. The models are estimated on nationally representative, repeated cross sectional survey data. Card take-up is not found to be endogenous in models where card status is instrumented by the policy change, and so cross-sectional estimates are also considered. The preferred estimate is a statistically insignificant elasticity of –0.1, calculated using the cross-sectional propensity score method. * I am indebted to Associate Professor Garry Barrett and Professor Peter Saunders for their excellent guidance and supervision. I acknowledge the suggestions of seminar participants at the University of New South Wales, the University of Wollongong and the University of Technology Sydney. All errors and omissions are my own.