Pharmaceutical-embodied technical progress, longevity, and quality of life: drugs as 'Equipment for Your Health'
Several econometric studies have concluded that technical progress embodied in equipment is a major source of manufacturing productivity growth. Other research has suggested that, over the long run, growth in the US economy's 'health output' has been at least as large as the growth in non-health goods and services. One important input in the production of health-pharmaceuticals-is even more R&D-intensive than equipment. In this paper, we test the pharmaceutical-embodied technical progress hypothesis-the hypothesis that newer drugs increase the length and quality of life-and estimate the rate of progress. To do this, we estimate health production functions, in which the dependent variables are various indicators of post-treatment health status (such as survival, perceived health status, and presence of physical or cognitive limitations), and the regressors include drug vintage (the year in which the FDA first approved a drug's active ingredient(s)) and indicators of pre-treatment health status. We estimate these relationships using extremely disaggregated-prescription-level-cross-sectional data derived primarily from the 1997 Medical Expenditure Panel Survey. We find that people who used newer drugs had better post-treatment health than people using older drugs for the same condition, controlling for pre-treatment health, age, sex, race, marital status, education, income, and insurance coverage: they were more likely to survive, their perceived health status was higher, and they experienced fewer activity, social, and physical limitations. The estimated cost of the increase in vintage required to keep a person alive is lower than some estimates of the value of remaining alive for 1 month. One estimate of the cost of preventing an activity limitation is $1745, and the annual rate of technical progress with respect to activity limitations is 8.4%. People consuming newer drugs tend to experience greater increases (or smaller declines) in physical ability than people consuming older drugs. Most of the health measures indicate that the effect of drug vintage on health is higher for people with low initial health than it is for people with high initial health. Therefore in contrast to equipment-embodied technical progress, which tends to increase economic inequality, pharmaceutical-embodied technical progress has a tendency to reduce inequality as well as promote economic growth, broadly defined. Copyright © 2007 John Wiley & Sons, Ltd.
Volume (Year): 28 (2007)
Issue (Month): 4-5 ()
|Contact details of provider:|| Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/7976|
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.:
- William D. Nordhaus, 2002.
"The Health of Nations: The Contribution of Improved Health to Living Standards,"
NBER Working Papers
8818, National Bureau of Economic Research, Inc.
- William D. Nordhaus, 2002. "The Health of Nations: The Contribution of Improved Health to Living Standards," Cowles Foundation Discussion Papers 1355, Cowles Foundation for Research in Economics, Yale University.
- Charles R. Hulten, 1992. "Growth Accounting When Technical Change is Embodied in Capital," NBER Working Papers 3971, National Bureau of Economic Research, Inc.
- Bahk, Byong-Hong & Gort, Michael, 1993. "Decomposing Learning by Doing in New Plants," Journal of Political Economy, University of Chicago Press, vol. 101(4), pages 561-83, August.
- Adriana Lleras-Muney & Frank R. Lichtenberg, 2002. "The Effect of Education on Medical Technology Adoption: Are the More Educated More Likely to Use New Drugs," NBER Working Papers 9185, National Bureau of Economic Research, Inc.
- Hulten, Charles R, 1992. "Growth Accounting When Technical Change Is Embodied in Capital," American Economic Review, American Economic Association, vol. 82(4), pages 964-80, September.
- Romer, Paul M, 1990.
"Endogenous Technological Change,"
Journal of Political Economy,
University of Chicago Press, vol. 98(5), pages S71-102, October.
- Lichtenberg, Frank R & Siegel, Donald, 1991.
"The Impact of R&D Investment on Productivity--New Evidence Using Linked R&D-LRD Data,"
Western Economic Association International, vol. 29(2), pages 203-29, April.
- Frank R. Lichtenberg & Donald Siegel, 1989. "The Impact of R&D Investment On Productivity - New Evidence Using Linked R&D-LRD Data," NBER Working Papers 2901, National Bureau of Economic Research, Inc.
- Plutarchos Sakellaris & Dan Wilson, 2000.
"The Production-Side Approach to Estimating Embodied Technological Change,"
Electronic Working Papers
00-002, University of Maryland, Department of Economics.
- Plutarchos Sakellaris & Daniel J. Wilson, 2001. "The production-side approach to estimating embodied technological change," Finance and Economics Discussion Series 2001-20, Board of Governors of the Federal Reserve System (U.S.).
- Bartel, Ann P & Lichtenberg, Frank R, 1987. "The Comparative Advantage of Educated Workers in Implementing New Technology," The Review of Economics and Statistics, MIT Press, vol. 69(1), pages 1-11, February.
- repec:umd:umdeco:sakellaris0002 is not listed on IDEAS
- Zvi Griliches & Frank R. Lichtenberg, 1984.
"R&D and Productivity Growth at the Industry Level: Is There Still a Relationship?,"
in: R&D, Patents, and Productivity, pages 465-502
National Bureau of Economic Research, Inc.
- Zvi Griliches, 1998. "R&D and Productivity Growth at the Industry Level: Is There Still a Relationship?," NBER Chapters, in: R&D and Productivity: The Econometric Evidence, pages 213-240 National Bureau of Economic Research, Inc.
- Robert M. Solow, 1956. "A Contribution to the Theory of Economic Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 70(1), pages 65-94.
When requesting a correction, please mention this item's handle: RePEc:wly:mgtdec:v:28:y:2007:i:4-5:p:371-392. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing)or (Christopher F. Baum)
If references are entirely missing, you can add them using this form.