Essays in the Economics of Pharmaceutical Policy

This dissertation studies how pharmaceutical policy shapes firm behavior and market outcomes, with a focus on recent reforms in China. The first chapter studies China's Marketing Authorization Holder reform, which separated the right to hold a drug approval from the requirement to own manufacturing capacity. The reform expanded the feasibility of production outsourcing for drug developers. The chapter develops a framework in which outsourcing may raise project payoffs by improving production efficiency, while it may also weaken appropriability when outsourcing requires the transfer of process knowledge to entrusted manufacturers. Difference-in-differences estimates comparing pilot and nonpilot provinces before national rollout do not show an increase in drug development or out-licensing activity during the pilot period. Evidence on the proposed mechanism uses synthetic complexity as a proxy for process knowledge and indicates that outsourcing decisions vary with this measure. Among patented products, greater synthetic complexity is associated with a lower probability of outsourcing. The findings suggest that relaxing outsourcing constraints does not necessarily translate into more innovation, especially when production efficiency gains may be offset by weaker appropriability of manufacturing knowledge protected through trade secrecy. The second chapter examines China's centralized drug procurement program, which combines competitive bidding with volume commitments in public hospital purchasing. The analysis links hospital sales data to procurement bidding records and uses two sources of policy variation: the initial pilot across cities and the staggered entry of active ingredients into later national batches. The estimates indicate a substantial reduction in realized hospital sales revenue and fewer active suppliers in covered markets, along with evidence of increased sales-revenue-based concentration in the national batch design.