50 opinion multipliers. Accordingly, burdening physicians could hardly be used as a votes-maximizing strategy. On the contrary, political decisions against the powerful pharmaceutical business companies are very popular. Their bad reputation is based on the perception of electors, who say that many drugs are considered to be useless or even harmful, but are successful in the market because of a huge amount of advertising. High net operating margins, on average in the OECD of 7 %, are ascribed to excessive retail prices (Breyer et al. 2003, p. 422). Moreover, this highly internationalised economic sector is deemed a precursor of globalisation, which is associated with social irresponsibility (the international concentration of the industry, displacement of production locations and the problem of providing cheap medicine in developing countries) by large parts of the population. Even the methods of production and research are caught in the critic’s cross? re due to experiments on animals and environmental pollution. Recently, these reservations have been invigorated by ethical arguments concerning stem-cell research. Thus it can be supposed that savings at the expense of the pharmaceutical industry are more accepted by the public than bene? t cuts or increasing contribution rates. But the pharmaceutical industry is a growth industry which generated a turnover of € 29.4 billion in 2006 with 113,000 often highly-quali? ed employees in Germany (VFA 2007). The pharmaceutical sector is a key industry for economical prosperity. Furthermore it is highly organised with diverse associations and strong political connections.37 Consequently, politicians have to combine two diametrically opposed ambitions: vote-maximizing and economic prosperity. In the following we try to ? nd out how politicians dealt with this dilemma of interests in the past. 3.5. Model Speci? cation and Methodology The purpose of this chapter is to ? nd an explanation for the development of the SHI’s drug expenditure by using an econometric approach and by paying special consideration to political interests.38 To validate our results, we apply two different model speci? cations: an OLS regression in ? rst differences and an ECM. For the following, the variables are presented ? rst because they are identical in both approaches. Subsequently the models’ speci? cations are shown. 3.5.1. The Endogenous Variable We try to explain the SHI’s pharmaceutical expenditure (drug costs which are reimbursed by sickness funds plus insurants’ out-of-pocket payments). To achieve per capita values, we divide total expenditure by the number of insurants. The necessary 37 For further information see Blankart and Wolf (2005). 38 The econometric approach traces back to Breyer and Ulrich (2000). 51 time-series dataset has been gathered from the SHI Pharmaceutical Index. It is comprised of the years from 1983 to 2004, so 22 data points are being used for the regression. The data have been de? ated with the Pharmaceutical Price Index (year 2000 = 100 %).39 Endogenous variable: Real SHI-Drug Expenditure per Insurant (Expt). 3.5.2. The Exogenous Variables It is usually assumed that there exist two exogenous determinants for drug expenditure: age structure of the population and technological progress. Additionally, the basic model takes co-payments of the insurants into consideration. For the next step we try to include political interests by using different dummy variables. Thus the following expenditure determinants come into consideration: a) age structure, b) technological progress, c) co-payments and d) political interests. a) Age structure: Pharmaceutical consumption is heavily depending on age.40 Despite comparably high infantile drug usage due to children’s diseases and a temporarily boost between an age of 15 to 19 (mainly caused by sex hormones for girls), drug consumption stays at a very low level of below 200 De? ned Daily Dosages per year on average. But after the lowest average, between the age of 20 to 25, drug consumption begins to increase slowly but consistently. Beyond the age of 40 there is a dramatic, exponential boost to the acceleration of drug use. The maximum is reached between the age of 85 and 90, which averages more than fourteen times of the drug consumption of a 20 years old person. In 2003, more than 50 % of the total drug expenditure were prescribed to people beyond 60 years old, although they represented only 26 % of the insured people (? gure 3.2). 39 Source: SHI Drug Index of the Scienti? c Institute of the Health Care Fund, published in Schwabe and Paffrath (volumes 1985 - 2006). 40 Although state of health depends on age, it is absolutely controversial if the ageing of the population demographic leads directly to increasing health care expenditure; therefore long-ranged prognoses of drug expenditure development are highly precarious (see chapter 2). But for the analysis in this chapter the dynamic interrelation between age and drug expenditure has only minor relevance because we are only interested in temporary ? uctuations of expenditure development.