The purpose of this paper is to estimate the technical efficiency of Japanese pharmaceutical firms and to analyze the relationship between the efficiency of pharmaceutical firms and NHI Drug Price revisions. This efficiency and relationship has not been effectively analyzed in the past.
First, stochastic production frontier of pharmaceutical firms is estimated, and technical efficiency is measured. Then the relationship between the efficiency of pharmaceutical firms and NHI Drug Price revisions is estimated.
The estimation results of stochastic production frontier of pharmaceutical firms are good. And the results show that technical efficiency is about 90 percent at each firm. The estimation result of the relationship between technical efficiency and the NHI Drug Price revisions shows that drug price of this period is significant. These results lead to the conclusion that the efficiency of pharmaceutical firms increases via NHI Drug Price revisions.