Estimation of Medication Demand Function in Iranian Households using Panel Data, 2004-2011

Growth of pharmaceutical spending leads to rising health care expenses. Pharmaceutical costs may increase due to price increases, increase in the amount of medications, or both of them. The aim of this study was to analyze factors affecting demand and costs of pharmaceutical in Iranian households. In this study, we used a panel analysis approach to analyze retrospective time-series data. Data were obtained from the provincial samples of urban and rural household surveys of the Statistical Center of Iran in 30 provinces during 2004 to 2011. We used the Eviews to assess the determinants of medication demand function. The coefficient of medication price logarithm was 0.92 ± 0.18 and 0.37 ± 0.12 among urban and rural households, respectively. The price elasticity of medications was 0.08 among urban households and 0.63 among rural households. Although the demand of medication for both urban and rural households was inelastic, rural households were more sensitive to the price changes. The coefficient of income logarithm indicated that income elasticity of medication expenses was 0.35 ± 0.11 for urban and 0.94 ± 0.09 for rural households. It showed that for both urban and rural household groups, the medication use was necessary. Regarding medication inelastic demand among urban and rural households, increasing medication price decreased the medication use; however it resulted in more pressure on low income households.