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Insurance and Incentives for Medical Innovation

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Author Info
Alan M. Garber
Charles I. Jones
Paul M. Romer

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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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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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Handle: RePEc:nbr:nberwo:12080

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Find related papers by JEL classification:
I1 - Health, Education, and Welfare - - Health
O30 - Economic Development, Technological Change, and Growth - - Technological Change - - - General

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. 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. [Downloadable!] (restricted)
  2. Saez, Emmanuel, 2001. "Using Elasticities to Derive Optimal Income Tax Rates," Review of Economic Studies, Blackwell Publishing, vol. 68(1), pages 205-29, January.
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  3. Martin Gaynor & Deborah Haas-Wilson & William B. Vogt, 2000. "Are Invisible Hands Good Hands? Moral Hazard, Competition, and the Second-Best in Health Care Markets," Journal of Political Economy, University of Chicago Press, vol. 108(5), pages 992-1005, October. [Downloadable!] (restricted)
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  4. Darius Lakdawalla & Neeraj Sood, 2005. "Insurance and Innovation in Health Care Markets," NBER Working Papers 11602, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Charles I. Jones, 2006. "The Value of Information in Growth and Development," Working Papers 032006, Hong Kong Institute for Monetary Research. [Downloadable!]
  2. Darius Lakdawalla & Neeraj Sood, 2007. "The Welfare Effects of Public Drug Insurance," NBER Working Papers 13501, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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