Assessing Price and Non-Price Signals of Drug Quality

Pharmaceutical products can be of poor quality either because they contain zero correct active ingredient (referred to as “counterfeit”) or because they contain a non-zero but incorrect amount of the right active ingredient (referred to as “substandard”).While both types of poorquality drugs can be dangerous, they differ in health consequence, price, and potential policy remedies. Assessing basic quality of 1437 samples of Ciprofloxacin from 18 low-to-middleincome countries, we aim to understand how price and non-price signals can help distinguish counterfeits, substandard drugs, and passing drugs. Following the Global Pharma Health Fund e.V. Minilab® protocol, we find 9.88% of samples have less than 80% of the correct active ingredient and 41.5% of these failures are counterfeits. Both product registration and chain affiliation of retailers are strong indicators of higher probability to pass in the Minilab test and higher retail price. Within quality failures, chain affiliation is more likely to indicate substandard while product registration with local government is more likely to indicate counterfeit. This suggests that registered products are more likely to be targeted by counterfeiters. Furthermore, substandard drugs are priced much lower than comparable generics in the same city but counterfeits offer almost no discount from the targeted genuine version. These findings are consistent with economic theory, and have important implications for both consumers and policy makers. JEL: I15, I18, D8, L15, L51. Keyword: drug safety, counterfeit, substandard, regulation, chain. Roger Bate: American Enterprise Institute, 1150 17 St NW, Washington DC 20036, 202-828-6029, [email protected]. Ginger Zhe Jin: 3115 F Tydings Hall, Department of Economics, University of Maryland, College Park MD 20742, (301) 405-3484, [email protected]. Aparna Mathur: American Enterprise Institute, 1150 17 St NW, Washington DC 20036, 202-828-6026, [email protected]. The Legatum Institute funded the collection of medicines and testing and a grant from the Social Sciences and Humanities Research Council of Canada provided subsequent funding to cover analysis of survey results. We would also like to thank Andreas Seiter and other participants at the World Bank seminar for their comments and suggestions. All errors are ours.