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Is Medicine an Ivory Tower? Induced Innovation, Technological Opportunity, and For-Profit vs. Non-Profit Innovation

  • Jay Bhattacharya
  • Mikko Packalen

This paper examines whether the composition of medical research responds to changes in disease incidence and research opportunities. The paper also provides new evidence on induced pharmaceutical innovation. In both cases we use the change in the demographic structure of the market (measured by age structure and obesity prevalence) to test the induced innovation hypothesis. Technological opportunity is calculated from estimates of structural productivity parameters. The extent of inventive activity is measured from the MEDLINE database on 16 million biomedical publications. We match these data with data on disease incidence. We show that medical research responds to changes in disease incidence and research opportunities. We also find that pharmaceutical innovation responds to aging- and obesity-induced changes in potential market size.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13862.

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Date of creation: Mar 2008
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Handle: RePEc:nbr:nberwo:13862
Note: HC HE
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  1. David Popp, 2002. "Induced Innovation and Energy Prices," American Economic Review, American Economic Association, vol. 92(1), pages 160-180, March.
  2. Frank R. Lichtenberg, 2001. "The Allocation of Publicly Funded Biomedical Research," NBER Chapters, in: Medical Care Output and Productivity, pages 565-590 National Bureau of Economic Research, Inc.
  3. Daron Acemoglu & Joshua Linn, 2004. "Market Size in Innovation: Theory and Evidence from the Pharmaceutical Industry," Levine's Working Paper Archive 228400000000000002, David K. Levine.
  4. Ricardo J. Caballero & Adam B. Jaffe, 1993. "How High are the Giants' Shoulders: An Empirical Assessment of Knowledge Spillovers and Creative Destruction in a Model of Economic Growth," NBER Working Papers 4370, National Bureau of Economic Research, Inc.
  5. Frank R. Lichtenberg & Joel Waldfogel, 2003. "Does Misery Love Company? Evidence from pharmaceutical markets before and after the Orphan Drug Act," NBER Working Papers 9750, National Bureau of Economic Research, Inc.
  6. Mikko Packalen & Jay Bhattacharya, 2010. "The Other Ex-Ante Moral Hazard in Health," Working Papers 1015, University of Waterloo, Department of Economics, revised Dec 2010.
  7. Lakdawalla, Darius & Philipson, Tomas, 2006. "The nonprofit sector and industry performance," Journal of Public Economics, Elsevier, vol. 90(8-9), pages 1681-1698, September.
  8. Lisa George & Joel Waldfogel, 2003. "Who Affects Whom in Daily Newspaper Markets?," Journal of Political Economy, University of Chicago Press, vol. 111(4), pages 765-784, August.
  9. Richard G. Newell & Adam B. Jaffe & Robert N. Stavins, 1998. "The Induced Innovation Hypothesis and Energy-Saving Technological Change," NBER Working Papers 6437, National Bureau of Economic Research, Inc.
  10. Frank R. Lichtenberg, 2006. "Importation and Innovation," NBER Working Papers 12539, National Bureau of Economic Research, Inc.
  11. Stefano DellaVigna & Joshua M. Pollet, 2007. "Demographics and Industry Returns," American Economic Review, American Economic Association, vol. 97(5), pages 1667-1702, December.
  12. Amy Finkelstein, 2004. "Static and Dynamic Effects of Health Policy: Evidence From the Vaccine Industry," The Quarterly Journal of Economics, MIT Press, vol. 119(2), pages 527-564, May.
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