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Insurance and Incentives for Medical Innovation

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

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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File URL: http://www.nber.org/papers/w12080.pdf
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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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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
Note: AG HC PR
Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
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Web page: http://www.nber.org
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  1. 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.
  2. 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.
  3. Emmanuel Saez, 2000. "Using Elasticities to Derive Optimal Income Tax Rates," NBER Working Papers 7628, National Bureau of Economic Research, Inc.
  4. Darius Lakdawalla & Neeraj Sood, 2005. "Insurance and Innovation in Health Care Markets," NBER Working Papers 11602, National Bureau of Economic Research, Inc.
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