Rewarding inventors with inefficient monopoly power has long been regarded as the price of encouraging innovation. Prescription drug insurance escapes that trade-off and achieves an elusive goal: lowering static deadweight loss, without reducing incentives for innovation. As a result of this...

Recent evidence suggests that Medicare Part D increased prescription drug use among seniors, and increased pharmaceutical firms' revenues from sales. Previous studies also indicate that increases in market size induce pharmaceutical innovation. This paper assesses the impact of the Medicare Part...

Monopolies appear throughout health care. We show that health insurance operates like a conventional two-part pricing contract that allows monopolists to extract profits without inefficiently constraining quantity. When insurers are free to offer a range of insurance contracts to different...