Experts' agency problems: evidence from the prescription drug market in Japan

Abstract

This article examined the physician-patient agency relationship in the context of the prescription drug market in Japan. In this market, physicians often both prescribe and dispense drugs and can pocket profits in so doing. A concern is that, due to the incentive created by the mark-up, physicians' prescription decisions may be distorted. Empirical results using anti-hypertensive drugs suggest that physicians' prescription choices are influenced by the mark-up. However, physicians are also sensitive to the patient's out-of-pocket costs. Overall, although the mark-up affects prescription choices, physicians appear more responsive to the patient's out-of-pocket costs than their own profits from mark-up.