Abstract

We study the economic consequences of limits to the number of pharmacies allowed to operate in a national territory. We use a reform approved in 2012 in Italy that mandated a sharp increase of 10% in the number of pharmacies allowed to operated in the national territory. Following the reform, we observe that the public expenditure for medicines sold at pharmacies increases, while that to buy medicines for hospital decreases. Then, we set up a regression discontinuity design to study whether limits to the number of pharmacies impact hospitalizations. We find that an increase of 10% in the number of pharmacies lowered the expenditure in medical hospitalizations of 1.3%, and we do not find any impact on surgical hospitalizations. Interestingly, we find that pharmacies reduce both the number and the average length of hospitalizations. We conclude that limiting the number of pharmacies impose to national governments unnecessary monetary costs.