Crises and the Direction of Innovation

46 Pages Posted: 29 Apr 2020 Last revised: 12 Nov 2020

See all articles by Kevin Bryan

Kevin Bryan

University of Toronto - Strategic Management

Jorge Lemus

University Of Illinois Urbana Champaign

Guillermo Marshall

University of British Columbia (UBC) - Sauder School of Business

Date Written: May 4, 2020

Abstract

The value of innovation during crises can be extraordinary. While high payoffs increase the rate of innovation, they also induce a strategic distortion in its direction. High payoffs attract entry by innovators, making the R\&D supply side more competitive. This competition endogenously shifts effort toward less promising but quicker-to-finish inventions. We develop a dynamic structural model quantifying the magnitude of this distortion, even when the value of potential inventions are not observed in the data. As a case study, we estimate entry of vaccines versus therapeutics and novel versus repurposed compounds developed during the COVID-19 pandemic, showing substantial distortion away from vaccines. Policy remedies include advance purchase commitments based on ex-ante value, targeted research subsidies, or antitrust exemptions for joint research ventures.

Suggested Citation

Bryan, Kevin and Lemus, Jorge and Marshall, Guillermo, Crises and the Direction of Innovation (May 4, 2020). Available at SSRN: https://ssrn.com/abstract=3587973 or http://dx.doi.org/10.2139/ssrn.3587973

Kevin Bryan

University of Toronto - Strategic Management ( email )

Canada

Jorge Lemus (Contact Author)

University Of Illinois Urbana Champaign ( email )

1407 Gregory Drive, DKH 214
Urbana, IL 61801
United States

HOME PAGE: http://sites.google.com/site/jorgelemuswebsite/

Guillermo Marshall

University of British Columbia (UBC) - Sauder School of Business ( email )

2053 Main Mall
Vancouver, BC V6T 1Z2
Canada

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