Prescription Drug Use and Abuse: Theory and Policy Implications

Prescription drug abuse is studied in a model where individuals with imperfectly observable health conditions seek prescription drugs for either recreational purposes or medical reasons. The equilibrium numbers of drug abusers and legitimate users are endogenous and depend on economic and non-economic barriers to drugs consumption, such as pricing, healthcare costs, refill policies, monitoring programs, and the medical community’s prescription standards. The model calibrated to U.S. data reveals that policies centered around raising economic barriers reduce prescription drug abuse but inhibit legitimate demand. Improving drug monitoring programs, such as instituting a national drug registry, effectively prevents drug abuse.