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Insurance and Incentives for Medical Innovation

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  • Alan M. Garber
  • Charles I. Jones
  • Paul M. Romer

Abstract

This paper studies the interactions between health insurance and the incentives for innovation. Although we focus on pharmaceutical innovation, our discussion applies to other industries producing novel technologies for sale in markets with subsidized demand. Standard results in the growth and productivity literatures suggest that firms in many industries may possess inadequate incentives to innovate. Standard results in the health literature suggest that health insurance leads to the overutilization of health care. Our study of innovation in the pharmaceutical industry emphasizes the interaction of these incentives. Because of the large subsidies to demand from health insurance, limits on the lifetime of patents and possibly limits on monopoly pricing may be necessary to ensure that pharmaceutical companies do not possess excess incentives for innovation.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12080.

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Date of creation: Mar 2006
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Publication status: published as "Insurance and Incentives for Medical Innovation" (with Alan Garber and Paul Romer), Forum for Health Economics & Policy, 2006, Forum: Biomedical Research and the Economy: Article 4
Handle: RePEc:nbr:nberwo:12080

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  1. Saez, Emmanuel, 2001. "Using Elasticities to Derive Optimal Income Tax Rates," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 68(1), pages 205-29, January.
  2. Darius Lakdawalla & Neeraj Sood, 2005. "Insurance and Innovation in Health Care Markets," NBER Working Papers 11602, National Bureau of Economic Research, Inc.
  3. Martin Gaynor & Deborah Haas-Wilson & William B. Vogt, 1998. "Are Invisible Hands Good Hands? Moral Hazard, Competition, and the Second Best in Health Care Markets," NBER Working Papers 6865, National Bureau of Economic Research, Inc.
  4. Tomas J. Philipson & Anupam B. Jena, 2005. "Who Benefits from New Medical Technologies? Estimates of Consumer and Producer Surpluses for HIV/AIDS Drugs," NBER Working Papers 11810, National Bureau of Economic Research, Inc.
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Cited by:
  1. Patricia M. Danzon & Eric L. Keuffel, 2013. "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.
  2. Charles I. Jones, 2006. "The Value of Information in Growth and Development," Working Papers 032006, Hong Kong Institute for Monetary Research.
  3. Anirban Basu & David Meltzer, 2012. "Private Manufacturers’ Thresholds to Invest in Comparative Effectiveness Trials," PharmacoEconomics, Springer, Springer, vol. 30(10), pages 859-868, October.
  4. Darius Lakdawalla & Neeraj Sood, 2007. "The Welfare Effects of Public Drug Insurance," NBER Working Papers 13501, National Bureau of Economic Research, Inc.
  5. Ernst R. Berndt & Joseph P. Newhouse, 2010. "Pricing and Reimbursement in U.S. Pharmaceutical Markets," NBER Working Papers 16297, National Bureau of Economic Research, Inc.
  6. Rajat Acharyya & Maria D.C. Garcia-Alonso, 2008. "Income-Based Price Subsidies, Parallel Imports and Markets Access to New Drugs for the Poor," Studies in Economics, Department of Economics, University of Kent 0820, Department of Economics, University of Kent.
  7. Grossmann, Volker, 2013. "Do cost-sharing and entry deregulation curb pharmaceutical innovation?," Journal of Health Economics, Elsevier, Elsevier, vol. 32(5), pages 881-894.
  8. Lakdawalla, Darius & Sood, Neeraj, 2009. "Innovation and the welfare effects of public drug insurance," Journal of Public Economics, Elsevier, Elsevier, vol. 93(3-4), pages 541-548, April.
  9. Jena, Anupam B. & Philipson, Tomas J., 2008. "Cost-effectiveness analysis and innovation," Journal of Health Economics, Elsevier, Elsevier, vol. 27(5), pages 1224-1236, September.
  10. Xavier Gabaix & David Laibson & Deyuan Li & Hongyi Li & Sidney Resnick & Casper G. de Vries, 2013. "The Impact of Competition on Prices with Numerous Firms," Working Papers, Chapman University, Economic Science Institute 13-07, Chapman University, Economic Science Institute.

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