Market Failure in the Diffusion of Clinician-Developed Innovations: The Case of Off-Label Drug Discoveries
25 Pages Posted: 8 Jun 2013 Last revised: 16 Feb 2016
Date Written: September 24, 2014
Medical doctors occasionally discover potentially valuable new off-label uses for drugs during their clinical practice. They apply these to help their own patients, but often have minimal incentives to invest in diffusing them further. If the clinicians do not intend to patent and sell their discoveries – generally difficult and costly to do - the benefits that other clinicians might obtain from adopting the new off-label discoveries are to some extent an externality from the perspective of the discoverer. In other words, absent a market link between potential (free) adopters and the innovator, innovating clinicians incentives to invest in efforts to diffuse are likely to be low. This represents a form of market failure: effort invested in diffusion could lower adoption costs for many, but few innovators will invest that effort – and social welfare will be accordingly reduced. In this study we explore for empirical evidence for the market failure just described, and do find evidence for it. We find that clinicians’ diffusion efforts, when made, do increase the diffusion of generally valuable discoveries, but that innovating clinicians typically invest little to support diffusion. We therefore conclude with a discussion of how such a market failure could be addressed.
Keywords: user innovation, diffusion, clinician innovation, market failure
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