Altruism and Innovation in Health Care
AbstractThe joint presence of technological change and consumption externalities is central to health care industries around the world, because medical innovation drives the expansion of the health care sector and altruism seems to motivate many public subsidies. Although traditional economic analysis has proposed well-known remedies to deal with consumption externalities and inefficient technological change in isolation, it lacks clear principles for addressing them jointly. We argue that standard remedies to each of the two problems are inadequate. Focusing on U.S. health care, we provide illustrative calculations of the dynamic inefficiency in the level of research and development (R&D) spending when innovators are unable to appropriate the altruistic surplus of nonconsumers. We calibrate that altruistic gains amount to about a quarter of consumer surplus in the baseline scenario and that R&D spending may be underprovided by as much as 60 percent.
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Bibliographic InfoArticle provided by University of Chicago Press in its journal The Journal of Law and Economics.
Volume (Year): 53 (2010)
Issue (Month): 3 ()
Pages: 497 - 518
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Web page: http://www.journals.uchicago.edu/JLE/
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- Basu, Anirban & Jena, Anupam B. & Philipson, Tomas J., 2011.
"The impact of comparative effectiveness research on health and health care spending,"
Journal of Health Economics,
Elsevier, vol. 30(4), pages 695-706, July.
- Anirban Basu & Tomas J. Philipson, 2010. "The Impact of Comparative Effectiveness Research on Health and Health Care Spending," NBER Working Papers 15633, National Bureau of Economic Research, Inc.
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