Publication

Falsified or Substandard? Assessing Price and Non-Price Signals of Drug Quality

Roger Bate, Gingner Jin and Aparna Mathur , Journal of Economics & Management Strategy 24(4) , 687-711 , December 2015.
Abstract:

Pharmaceutical products can be of poor quality either because they contain zero correct active ingredient (referred to as “falsified”) or because they contain a non-zero but incorrect amount of the right active ingredient (referred to as “substandard”). While both types of poor-quality drugs can be dangerous, they differ in health consequence, price, and potential policy remedies.  Assessing basic quality of 1437 samples of Ciprofloxacin from 18 low-to-middle-income countries, we aim to understand how price and non-price signals can help distinguish between falsified, substandard, and passing drugs.

Following the Global Pharma Health Fund e.V. Minilab® protocol, we find 9.88% of samples have less than 80% of the correct active ingredient and 41.5% of these failures are falsified. Falsified and substandard drugs tend to differ in two observable attributes: first, falsified drugs are more likely to mimic drugs registered with local drug safety regulators. Second, after controlling for other factors, substandard drugs are on average cheaper than passing generics in the same city but the price of falsified drugs is not significantly different from that of passing drugs on average. These data patterns suggest that careful consumers may have information to suspect a drug is substandard before purchase but substandard drugs can still exist to cater to poor and less-educated population. In contrast, falsified drugs will be more difficult for consumers to identify ex ante since they appear similar to high quality, locally registered products in both price and packaging.

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