Do Firms Underinvest in Long-Term Research? Evidence from Cancer Clinical Trials

52 Pages Posted: 14 Sep 2013 Last revised: 8 Oct 2014

See all articles by Eric B. Budish

Eric B. Budish

University of Chicago - Booth School of Business

Benjamin N. Roin

affiliation not provided to SSRN

Heidi L. Williams

MIT Department of Economics; National Bureau of Economic Research (NBER)

Date Written: September 2013

Abstract

We investigate whether private research investments are distorted away from long-term projects. Our theoretical model highlights two potential sources of this distortion: short-termism and the fixed patent term. Our empirical context is cancer research, where clinical trials – and hence, project durations – are shorter for late-stage cancer treatments relative to early-stage treatments or cancer prevention. Using newly constructed data, we document several sources of evidence that together show private research investments are distorted away from long-term projects. The value of life-years at stake appears large. We analyze three potential policy responses: surrogate (non-mortality) clinicaltrial endpoints, targeted R&D subsidies, and patent design.

Suggested Citation

Budish, Eric B. and Roin, Benjamin N. and Williams, Heidi L., Do Firms Underinvest in Long-Term Research? Evidence from Cancer Clinical Trials (September 2013). NBER Working Paper No. w19430, Available at SSRN: https://ssrn.com/abstract=2325803

Eric B. Budish (Contact Author)

University of Chicago - Booth School of Business ( email )

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Benjamin N. Roin

affiliation not provided to SSRN

Heidi L. Williams

MIT Department of Economics ( email )

50 Memorial Drive
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Cambridge, MA 02142
United States
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(617) 253-1330 (Fax)

HOME PAGE: http://econ-www.mit.edu/faculty/heidiw

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