ABSTRACT
This chapter focuses on the role of pharmaceutical products in the production of health, patient choices of drugs under various insurance schemes, and the effects of technological change on the use of drugs. It includes several of the most general interest to health economists and describes the structure and regulation of the pharmaceutical industry. The "pharmaceutical preparations" industry, North American Industry Classification System Code 325412, formally consists of "establishments primarily engaged in manufacturing in-vivo diagnostic substances and pharmaceutical preparations intended for internal and external consumption in dose forms, such as ampoules, tablets, capsules, solutions, and suspensions." The chapter explores the determinants of pharmaceutical Research and Development and a conceptual framework to examine the effects of Food and Drug Administration regulations and patent law on innovations. Pharmaceutical firms also reach physicians by distributing samples, by direct mail, and by advertising in medical journals. The pharmaceutical industry is one of the most heavily regulated of all industries.
