Health Care, Technological Change, and Altruistic Consumption Externalities
Traditional economic analysis has proposed well known remedies to deal with consumption externalities and inefficient technological change in isolation, but lacks a general framework for addressing them jointly. We argue that the joint determination of R&D and consumption externalities is central to health care industries around the world generally, and for the pharmaceutical industry in particular. This is because technological change drives the expansion of the health care sector and altruism seems to motivate many public subsidies such as Medicaid in the US. We stress that standard remedies to the two problems in isolation are inefficient -- Pigouvian corrections to consumption externalities are inefficient under technological change and standard R&D stimuli are inefficient because they focus only on consumer and producer surplus, not the altruistic surplus accruing to non-consumers. We provide illustrative calculations of the dynamic inefficiency in the level of US R&D spending due to the inability of innovators to appropriate the altruistic surplus. We find that altruistic gains amount to about a quarter of consumer surplus in the baseline scenario. Our analysis implies that total R&D could be under-provided by as much as 60 percent.
|Date of creation:||Jan 2006|
|Publication status:||published as Journal of Law and Economics Vol. 53, No. 3. The University of Chicago Press. August 2010|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
Web page: http://www.nber.org
More information through EDIRC
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.:
- Kremer, Michael Robert & Miguel, Edward A. & Thorton, Rebecca L, 2004.
"Incentives to Learn,"
Center for International and Development Economics Research, Working Paper Series
qt9kc4p47q, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley.
- Michael Kremer & Edward Miguel & Rebecca Thornton, 2004. "Incentives to learn," Natural Field Experiments 00289, The Field Experiments Website.
- Kremer, Michael R. & Miguel, Edward & Thornton, Rebecca, 2009. "Incentives to Learn," Scholarly Articles 3716457, Harvard University Department of Economics.
- Michael Kremer & Edward Miguel & Rebecca Thornton, 2004. "Incentives to Learn," NBER Working Papers 10971, National Bureau of Economic Research, Inc.
- Kremer, Michael & Miguel, Edward & Thornton, Rebecca & Ozier, Owen, 2005. "Incentives to learn," Policy Research Working Paper Series 3546, The World Bank.
- Parry, Ian & Pizer, William & Fischer, Carolyn, 2000. "How Important is Technological Innovation in Protecting the Environment?," Discussion Papers dp-00-15, Resources For the Future.
- Philipson, Tomas, 2000.
"Economic epidemiology and infectious diseases,"
Handbook of Health Economics,
in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 33, pages 1761-1799
- 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.
- Philipson Tomas J & Jena Anupam B, 2006. "Who Benefits from New Medical Technologies? Estimates of Consumer and Producer Surpluses for HIV/AIDS Drugs," Forum for Health Economics & Policy, De Gruyter, vol. 9(2), pages 1-33, January.
- Amy Finkelstein, 2003. "Health Policy and Technological Change: Evidence from the Vaccine Industry," NBER Working Papers 9460, National Bureau of Economic Research, Inc.
- Wright, Brian Davern, 1983. "The Economics of Invention Incentives: Patents, Prizes, and Research Contracts," American Economic Review, American Economic Association, vol. 73(4), pages 691-707, September.
- Tomas J. Philipson & Anupam B. Jena, 2006.
"Surplus Appropriation from R&D and Health Care Technology Assessment Procedures,"
NBER Working Papers
12016, National Bureau of Economic Research, Inc.
- Tomas J. Philipson & Anupam B. Jena, 2005. "Surplus Appropriation from R&D and Health Care Technology Assessment Procedures," Public Economics 0511021, EconWPA.
- Michael Kremer, 2002. "Pharmaceuticals and the Developing World," Journal of Economic Perspectives, American Economic Association, vol. 16(4), pages 67-90, Fall.
- Joseph P. Newhouse, 1992. "Medical Care Costs: How Much Welfare Loss?," Journal of Economic Perspectives, American Economic Association, vol. 6(3), pages 3-21, Summer.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:11930. 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: ()
If references are entirely missing, you can add them using this form.