Financial Health Economics
AbstractWe provide a theoretical and empirical analysis of the link between financial and real health care markets. We document a “medical innovation premium” of 4-6% annually for equity of medical firms and analyze the implications it has for the growth of the health care sector. We interpret the premium as compensating investors for government-induced proft risk. We provide supportive evidence for this hypothesis through company filings and abnormal return patterns surrounding threats of government intervention. We quantify the implications of the premium for growth in real health care spending by calibrating our model to match historical trends. Policies that had removed government risk would have lead to more than a doubling of medical R&D and would have increased the current share of health care spending by 4% of GDP, with a predicted long run share of 38%.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 20075.
Date of creation: Apr 2014
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This paper has been announced in the following NEP Reports:
- NEP-ALL-2014-05-17 (All new papers)
- NEP-HEA-2014-05-17 (Health Economics)
- NEP-INO-2014-05-17 (Innovation)
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