Decentralized procurement for drugs and centralized price cap: a structural approach
Riccardo Camboni (University of Padova); Philippe Gagnepain (Paris School of Economics); David Martimort (Paris School of Economics); Paola Valbonesi (University of Padova)
Abstract
We develop a hierarchical model of government to represent the decentralised purchase of drugs for public hospitals and health care units in presence of a centralised price cap. Drugs are purchased using first price auctions, and the price cap bounds the reserve price that local public buyers can set in these auctions. Then we test the predictions of our model using an original dataset on Italian regional public buyers, containing about 3812 auctions. Our goal is to study discretion vs rules in determining the reserve price, and the related effects on procurement outcomes. Our results show that a centralized cap on the reserve price set by local public buyers determines an average positive welfare effect, as compared to the case where no national cap is in force.