Labor Markets in Statistics: The Subject Supply Effect in Medical R&D

Abstract

Medical research and development (R&D) differs from other R&D because of a unique linkage between output and input markets for medical products: potential consumers of existing medical products are also potential subjects in clinical trials required to develop new products. Therefore, an increase in the quality or reduction in the price of an existing treatment reduces the incentive of patients to participate in trials of new treatments. We provide evidence of this linkage, which we label the “subject supply effect,” by showing that a breakthrough HIV/AIDs treatment led to a sharp drop in the supply of trial subjects after the introduction of the treatment in 1996. The subject supply effect has important positive implications for how policies such as recent insurance expansions affect the rate of medical R&D and normative implications for whether subjects ought to be compensated for enrolling in clinical trials, an ethically controversial practice.

Keywords: Medical R&D, Research & Development, Health Economics

JEL Classification: I1, I11