IDEAS home Printed from https://ideas.repec.org/a/eee/indorg/v84y2022ics0167718722000261.html
   My bibliography  Save this article

Incentives for pharmaceutical innovation: What’s working, what’s lacking

Author

Listed:
  • Kyle, Margaret K.

Abstract

This article provides an overview of the performance of innovation policies in the pharmaceutical sector. It discusses the conditions under which various policies are mostly likely to result in socially valuable R&D. Interactions between different domestic policies, as well as the importance of considering strategic interactions between governments, are also highlighted.

Suggested Citation

  • Kyle, Margaret K., 2022. "Incentives for pharmaceutical innovation: What’s working, what’s lacking," International Journal of Industrial Organization, Elsevier, vol. 84(C).
  • Handle: RePEc:eee:indorg:v:84:y:2022:i:c:s0167718722000261
    DOI: 10.1016/j.ijindorg.2022.102850
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0167718722000261
    Download Restriction: Full text for ScienceDirect subscribers only

    File URL: https://libkey.io/10.1016/j.ijindorg.2022.102850?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Bennato, Anna Rita & Valletti, Tommaso, 2014. "Pharmaceutical innovation and parallel trade," International Journal of Industrial Organization, Elsevier, vol. 33(C), pages 83-92.
    2. Pierre Dubois & Morten Sæthre, 2020. "On the Effect of Parallel Trade on Manufacturers' and Retailers' Profits in the Pharmaceutical Sector," Econometrica, Econometric Society, vol. 88(6), pages 2503-2545, November.
    3. Manning, Willard G, et al, 1987. "Health Insurance and the Demand for Medical Care: Evidence from a Randomized Experiment," American Economic Review, American Economic Association, vol. 77(3), pages 251-277, June.
    4. DiMasi, Joseph A. & Grabowski, Henry G. & Hansen, Ronald W., 2016. "Innovation in the pharmaceutical industry: New estimates of R&D costs," Journal of Health Economics, Elsevier, vol. 47(C), pages 20-33.
    5. Pierre Dubois & Olivier de Mouzon & Fiona Scott-Morton & Paul Seabright, 2015. "Market size and pharmaceutical innovation," RAND Journal of Economics, RAND Corporation, vol. 46(4), pages 844-871, October.
    6. Kremer, Michael R., 1998. "Patent Buyouts: A Mechanism for Encouraging Innovation," Scholarly Articles 3693705, Harvard University Department of Economics.
    7. Heidi L. Williams, 2013. "Intellectual Property Rights and Innovation: Evidence from the Human Genome," Journal of Political Economy, University of Chicago Press, vol. 121(1), pages 1-27.
    8. Sampat, Bhaven N., 2012. "Mission-oriented biomedical research at the NIH," Research Policy, Elsevier, vol. 41(10), pages 1729-1741.
    9. Pierre Azoulay & Joshua S Graff Zivin & Danielle Li & Bhaven N Sampat, 2019. "Public R&D Investments and Private-sector Patenting: Evidence from NIH Funding Rules," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 86(1), pages 117-152.
    10. Reisinger, Markus & Saurí, Lluís & Zenger, Hans, 2019. "Parallel imports, price controls, and innovation," Journal of Health Economics, Elsevier, vol. 66(C), pages 163-179.
    11. Danzon, Patricia M. & Nicholson, Sean & Pereira, Nuno Sousa, 2005. "Productivity in pharmaceutical-biotechnology R&D: the role of experience and alliances," Journal of Health Economics, Elsevier, vol. 24(2), pages 317-339, March.
    12. Jessica Cohen & Pascaline Dupas & Simone Schaner, 2015. "Price Subsidies, Diagnostic Tests, and Targeting of Malaria Treatment: Evidence from a Randomized Controlled Trial," American Economic Review, American Economic Association, vol. 105(2), pages 609-645, February.
    13. Frank R. Lichtenberg, 2001. "The Allocation of Publicly Funded Biomedical Research," NBER Chapters, in: Medical Care Output and Productivity, National Bureau of Economic Research, Inc.
    14. Deepak Hegde, 2009. "Political Influence behind the Veil of Peer Review: An Analysis of Public Biomedical Research Funding in the United States," Journal of Law and Economics, University of Chicago Press, vol. 52(4), pages 665-690, November.
    15. Michele Boldrin & David K. Levine, 2013. "The Case against Patents," Journal of Economic Perspectives, American Economic Association, vol. 27(1), pages 3-22, Winter.
    16. Douglas J. Besharov & Heidi Williams, 2012. "Innovation Inducement Prizes: Connecting Research to Policy," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 31(3), pages 752-776, June.
    17. Hemphill, C. Scott & Sampat, Bhaven N., 2012. "Evergreening, patent challenges, and effective market life in pharmaceuticals," Journal of Health Economics, Elsevier, vol. 31(2), pages 327-339.
    18. Khan, B. Zorina, 2015. "Inventing Prizes: A Historical Perspective on Innovation Awards and Technology Policy," Business History Review, Cambridge University Press, vol. 89(4), pages 631-660, January.
    19. Amrita Ahuja & Susan Athey & Arthur Baker & Eric Budish & Juan Camilo Castillo & Rachel Glennerster & Scott Duke Kominers & Michael Kremer & Jean Lee & Canice Prendergast & Christopher M. Snyder & Ale, 2021. "Preparing for a Pandemic: Accelerating Vaccine Availability," AEA Papers and Proceedings, American Economic Association, vol. 111, pages 331-335, May.
    20. Mariana Carrera & Dana P. Goldman & Geoffrey Joyce & Neeraj Sood, 2018. "Do Physicians Respond to the Costs and Cost-Sensitivity of Their Patients?," American Economic Journal: Economic Policy, American Economic Association, vol. 10(1), pages 113-152, February.
    21. Geoffard, Pierre-Yves & Philipson, Tomas, 1997. "Disease Eradication: Private versus Public Vaccination," American Economic Review, American Economic Association, vol. 87(1), pages 222-230, March.
    22. Jeffrey L. Furman & Scott Stern, 2011. "Climbing atop the Shoulders of Giants: The Impact of Institutions on Cumulative Research," American Economic Review, American Economic Association, vol. 101(5), pages 1933-1963, August.
    23. Michael Kremer & Jonathan Levin & Christopher M. Snyder, 2020. "Advance Market Commitments: Insights from Theory and Experience," AEA Papers and Proceedings, American Economic Association, vol. 110, pages 269-273, May.
    24. Andrew J. Epstein & Jonathan D. Ketcham, 2014. "Information technology and agency in physicians' prescribing decisions," RAND Journal of Economics, RAND Corporation, vol. 45(2), pages 422-448, June.
    25. Panattoni, Laura E., 2011. "The effect of Paragraph IV decisions and generic entry before patent expiration on brand pharmaceutical firms," Journal of Health Economics, Elsevier, vol. 30(1), pages 126-145, January.
    26. Margaret K. Kyle & Anita M. McGahan, 2012. "Investments in Pharmaceuticals Before and After TRIPS," The Review of Economics and Statistics, MIT Press, vol. 94(4), pages 1157-1172, November.
    27. Margaret Kyle & Heidi Williams, 2017. "Is American Health Care Uniquely Inefficient? Evidence from Prescription Drugs," American Economic Review, American Economic Association, vol. 107(5), pages 486-490, May.
    28. Paolo Pertile & Simona Gamba & Martin Forster, 2018. "Free-Riding in Pharmaceutical Price Regulation: Theory and Evidence," Discussion Papers 18/04, Department of Economics, University of York.
    29. Benjamin F. Jones, 2011. "As Science Evolves, How Can Science Policy?," NBER Chapters, in: Innovation Policy and the Economy, Volume 11, pages 103-131, National Bureau of Economic Research, Inc.
    30. Daron Acemoglu & Joshua Linn, 2004. "Market Size in Innovation: Theory and Evidence from the Pharmaceutical Industry," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 119(3), pages 1049-1090.
    31. Margaret Kyle, 2018. "Are Important Innovations Rewarded? Evidence from Pharmaceutical Markets," Post-Print hal-01952663, HAL.
    32. Nobuo Kiriyama, 2012. "Trade and Innovation: Synthesis Report," OECD Trade Policy Papers 135, OECD Publishing.
    33. Toshiaki Iizuka, 2007. "Experts' agency problems: evidence from the prescription drug market in Japan," RAND Journal of Economics, RAND Corporation, vol. 38(3), pages 844-862, September.
    34. Kyle Margaret, 2011. "Strategic Responses to Parallel Trade," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 11(2), pages 1-34, January.
    35. Michael Kremer & Christopher M. Snyder, 2015. "Preventives Versus Treatments," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 130(3), pages 1167-1239.
    36. Lee Branstetter & Chirantan Chatterjee & Matthew J. Higgins, 2016. "Regulation and welfare: evidence from paragraph IV generic entry in the pharmaceutical industry," RAND Journal of Economics, RAND Corporation, vol. 47(4), pages 857-890, November.
    37. Alberto Galasso & Mark Schankerman, 2014. "Patents and Cumulative Innovation: Causal Evidence from the Courts," NBER Working Papers 20269, National Bureau of Economic Research, Inc.
    38. Michael Drummond & Adrian Towse, 2012. "Is it time to reconsider the role of patient co-payments for pharmaceuticals in Europe?," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 13(1), pages 1-5, February.
    39. Dranove, David, 1998. "Is there underinvestment in R & D about prevention?," Journal of Health Economics, Elsevier, vol. 17(1), pages 117-127, January.
    40. Katherine Baicker & Dana Goldman, 2011. "Patient Cost-Sharing and Healthcare Spending Growth," Journal of Economic Perspectives, American Economic Association, vol. 25(2), pages 47-68, Spring.
    41. Danielle Li, 2017. "Expertise versus Bias in Evaluation: Evidence from the NIH," American Economic Journal: Applied Economics, American Economic Association, vol. 9(2), pages 60-92, April.
    42. Andrew T. Ching & Masakazu Ishihara, 2012. "Measuring the Informative and Persuasive Roles of Detailing on Prescribing Decisions," Management Science, INFORMS, vol. 58(7), pages 1374-1387, July.
    43. Colleen Cunningham & Florian Ederer & Song Ma, 2021. "Killer Acquisitions," Journal of Political Economy, University of Chicago Press, vol. 129(3), pages 649-702.
    44. Mercedes Delgado & Margaret Kyle & Anita M. McGahan, 2013. "Intellectual Property Protection and the Geography of Trade," Journal of Industrial Economics, Wiley Blackwell, vol. 61(3), pages 733-762, September.
    45. Daniel Bennett & Che-Lun Hung & Tsai-Ling Lauderdale, 2015. "Health Care Competition and Antibiotic Use in Taiwan," Journal of Industrial Economics, Wiley Blackwell, vol. 63(2), pages 371-393, June.
    46. Michael Kremer, 1998. "Patent Buyouts: A Mechanism for Encouraging Innovation," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 113(4), pages 1137-1167.
    47. David Cutler & Jonathan S. Skinner & Ariel Dora Stern & David Wennberg, 2019. "Physician Beliefs and Patient Preferences: A New Look at Regional Variation in Health Care Spending," American Economic Journal: Economic Policy, American Economic Association, vol. 11(1), pages 192-221, February.
    48. Deepak Hegde & Bhaven Sampat, 2015. "Can Private Money Buy Public Science? Disease Group Lobbying and Federal Funding for Biomedical Research," Management Science, INFORMS, vol. 61(10), pages 2281-2298, October.
    49. Gamba, Simona, 2017. "The Effect of Intellectual Property Rights on Domestic Innovation in the Pharmaceutical Sector," World Development, Elsevier, vol. 99(C), pages 15-27.
    50. Anusua Datta & Dhaval Dave, 2017. "Effects of Physician‐directed Pharmaceutical Promotion on Prescription Behaviors: Longitudinal Evidence," Health Economics, John Wiley & Sons, Ltd., vol. 26(4), pages 450-468, April.
    51. Craig Garthwaite & Rebecca Sachs & Ariel Dora Stern, 2021. "Which Markets (Don't) Drive Pharmaceutical Innovation? Evidence From U.S. Medicaid Expansions," NBER Working Papers 28755, National Bureau of Economic Research, Inc.
    52. B. Zorina Khan, 2015. "Inventing Prizes: A Historical Perspective on Innovation Awards and Technology Policy," NBER Working Papers 21375, National Bureau of Economic Research, Inc.
    53. Bhaven Sampat & Heidi L. Williams, 2019. "How Do Patents Affect Follow-On Innovation? Evidence from the Human Genome," American Economic Review, American Economic Association, vol. 109(1), pages 203-236, January.
    54. Patricia M. Danzon & Mark V. Pauly, 2002. "Health Insurance and the Growth in Pharmaceutical Expenditures," Journal of Law and Economics, University of Chicago Press, vol. 45(S2), pages 587-613.
    55. Ilan Guedj & David Scharfstein, 2004. "Organizational Scope and Investment: Evidence from the Drug Development Strategies and Performance of Biopharmaceutical Firms," NBER Working Papers 10933, National Bureau of Economic Research, Inc.
    56. Margaret K. Kyle, 2007. "Pharmaceutical Price Controls and Entry Strategies," The Review of Economics and Statistics, MIT Press, vol. 89(1), pages 88-99, February.
    57. Amy Finkelstein, 2004. "Static and Dynamic Effects of Health Policy: Evidence from the Vaccine Industry," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 119(2), pages 527-564.
    58. Lee G. Branstetter & Raymond Fisman & C. Fritz Foley, 2006. "Do Stronger Intellectual Property Rights Increase International Technology Transfer? Empirical Evidence from U. S. Firm-Level Panel Data," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 121(1), pages 321-349.
    59. Kyle, Margaret K. & Ridley, David B. & Zhang, Su, 2017. "Strategic interaction among governments in the provision of a global public good," Journal of Public Economics, Elsevier, vol. 156(C), pages 185-199.
    60. Froot, Kenneth A & Scharfstein, David S & Stein, Jeremy C, 1993. "Risk Management: Coordinating Corporate Investment and Financing Policies," Journal of Finance, American Finance Association, vol. 48(5), pages 1629-1658, December.
    61. Pierre Azoulay, 2002. "Do Pharmaceutical Sales Respond to Scientific Evidence?," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 11(4), pages 551-594, December.
    62. Pierre Azoulay & Danielle Li, 2020. "Scientific Grant Funding," NBER Chapters, in: Innovation and Public Policy, pages 117-150, National Bureau of Economic Research, Inc.
    63. Yin, Wesley, 2008. "Market incentives and pharmaceutical innovation," Journal of Health Economics, Elsevier, vol. 27(4), pages 1060-1077, July.
    64. Alan T. Sorensen, 2000. "Equilibrium Price Dispersion in Retail Markets for Prescription Drugs," Journal of Political Economy, University of Chicago Press, vol. 108(4), pages 833-862, August.
    65. Margaret K. Kyle, 2018. "Are Important Innovations Rewarded? Evidence from Pharmaceutical Markets," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 53(1), pages 211-234, August.
    66. Elena Nicod, 2017. "Why do health technology assessment coverage recommendations for the same drugs differ across settings? Applying a mixed methods framework to systematically compare orphan drug decisions in four Europ," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 18(6), pages 715-730, July.
    67. Richard C. Levin & Alvin K. Klevorick & Richard R. Nelson & Sidney G. Winter, 1987. "Appropriating the Returns from Industrial Research and Development," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 18(3, Specia), pages 783-832.
    68. Duncan S. Gilchrist, 2016. "Patents as a Spur to Subsequent Innovation? Evidence from Pharmaceuticals," American Economic Journal: Applied Economics, American Economic Association, vol. 8(4), pages 189-221, October.
    69. Marie-Laure Allain & Emeric Henry & Margaret Kyle, 2016. "Competition and the Efficiency of Markets for Technology," Management Science, INFORMS, vol. 62(4), pages 1000-1019, April.
    70. Pierre Azoulay & Danielle Li, 2020. "Scientific Grant Funding," NBER Working Papers 26889, National Bureau of Economic Research, Inc.
    71. Toole, Andrew A, 2007. "Does Public Scientific Research Complement Private Investment in Research and Development in the Pharmaceutical Industry?," Journal of Law and Economics, University of Chicago Press, vol. 50(1), pages 81-104, February.
    72. Petra Moser, 2013. "Patents and Innovation: Evidence from Economic History," Journal of Economic Perspectives, American Economic Association, vol. 27(1), pages 23-44, Winter.
    73. Cockburn, Iain M. & Henderson, Rebecca M., 2001. "Scale and scope in drug development: unpacking the advantages of size in pharmaceutical research," Journal of Health Economics, Elsevier, vol. 20(6), pages 1033-1057, November.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Margaret K. Kyle, 2019. "The Alignment of Innovation Policy and Social Welfare: Evidence from Pharmaceuticals," NBER Chapters, in: Innovation Policy and the Economy, Volume 20, pages 95-123, National Bureau of Economic Research, Inc.
    2. Iain M. Cockburn & Jean O. Lanjouw & Mark Schankerman, 2016. "Patents and the Global Diffusion of New Drugs," American Economic Review, American Economic Association, vol. 106(1), pages 136-164, January.
    3. Agarwal, Ruchir & Gaule, Patrick, 2022. "What drives innovation? Lessons from COVID-19 R&D," Journal of Health Economics, Elsevier, vol. 82(C).
    4. Heidi L. Williams, 2016. "Intellectual Property Rights and Innovation: Evidence from Health Care Markets," Innovation Policy and the Economy, University of Chicago Press, vol. 16(1), pages 53-87.
    5. Kamal Saggi, 2016. "Trade, Intellectual Property Rights, and the World Trade Organization," Vanderbilt University Department of Economics Working Papers 16-00014, Vanderbilt University Department of Economics.
    6. Eric Budish & Benjamin Roin & Heidi Williams, 2013. "Do fixed patent terms distort innovation? Evidence from cancer clinical trials," Discussion Papers 13-001, Stanford Institute for Economic Policy Research.
    7. Wang, Lucy Xiaolu, 2022. "Global drug diffusion and innovation with the medicines patent pool," Journal of Health Economics, Elsevier, vol. 85(C).
    8. Leila Agha & Soomi Kim & Danielle Li, 2020. "Insurance Design and Pharmaceutical Innovation," NBER Working Papers 27563, National Bureau of Economic Research, Inc.
    9. Fabian Gaessler & Stefan Wagner, 2022. "Patents, Data Exclusivity, and the Development of New Drugs," The Review of Economics and Statistics, MIT Press, vol. 104(3), pages 571-586, May.
    10. Eric Budish & Benjamin N. Roin & Heidi Williams, 2015. "Do Firms Underinvest in Long-Term Research? Evidence from Cancer Clinical Trials," American Economic Review, American Economic Association, vol. 105(7), pages 2044-2085, July.
    11. Branstetter, Lee & Chatterjee, Chirantan & Higgins, Matthew J., 2022. "Generic competition and the incentives for early-stage pharmaceutical innovation," Research Policy, Elsevier, vol. 51(10).
    12. Patricia M. Danzon & Eric L. Keuffel, 2014. "Regulation of the Pharmaceutical-Biotechnology Industry," NBER Chapters, in: Economic Regulation and Its Reform: What Have We Learned?, pages 407-484, National Bureau of Economic Research, Inc.
    13. Suppliet, Moritz, 2020. "Umbrella branding in pharmaceutical markets," Journal of Health Economics, Elsevier, vol. 73(C).
    14. Iizuka, Toshiaki & Uchida, Gyo, 2017. "Promoting innovation in small markets: Evidence from the market for rare and intractable diseases," Journal of Health Economics, Elsevier, vol. 54(C), pages 56-65.
    15. Manuel Hermosilla, 2021. "Rushed Innovation: Evidence from Drug Licensing," Management Science, INFORMS, vol. 67(1), pages 257-278, January.
    16. Gaurab Aryal & Federico Ciliberto & Leland E. Farmer & Ekaterina Khmelnitskaya, 2022. "Valuing Pharmaceutical Drug Innovations," Papers 2212.07384, arXiv.org, revised Nov 2023.
    17. Blandinieres, Florence & Pellens, Maikel, 2021. "Scientist's industry engagement and the research agenda: Evidence from Germany," ZEW Discussion Papers 21-001, ZEW - Leibniz Centre for European Economic Research.
    18. Michael D. Frakes & Melissa F. Wasserman, 2020. "Investing in Ex Ante Regulation: Evidence from Pharmaceutical Patent Examination," NBER Working Papers 27579, National Bureau of Economic Research, Inc.
    19. Higgins, Matthew J. & Yan, Xin & Chatterjee, Chirantan, 2021. "Unpacking the effects of adverse regulatory events: Evidence from pharmaceutical relabeling," Research Policy, Elsevier, vol. 50(1).
    20. Aggarwal, Mayank & Chakrabarti, Anindya S. & Chatterjee, Chirantan & Higgins, Matthew J., 2023. "Research and market structure: Evidence from an antibiotic-resistant pathogenic outbreak," Research Policy, Elsevier, vol. 52(1).

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:indorg:v:84:y:2022:i:c:s0167718722000261. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/505551 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.