Insurance and Incentives for Medical Innovation
Alan M. Garber
Stanford University - Center for Primary Care and Outcomes Research; Government of the United States of America - Palo Alto Veterans Affairs Medical Center; National Bureau of Economic Research (NBER)
Charles I. Jones
Stanford Graduate School of Business; National Bureau of Economic Research (NBER)
Paul M. Romer
National Bureau of Economic Research (NBER)
NBER Working Paper No. w12080
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.
Number of Pages in PDF File: 30working papers series
Date posted: May 11, 2006
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