Insurance and Incentives for Medical Innovation

30 Pages Posted: 11 May 2006 Last revised: 8 Feb 2014

See all articles by Alan M. Garber

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)

Date Written: March 2006

Abstract

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.

Suggested Citation

Garber, Alan M. and Jones, Charles I. and Romer, Paul M., Insurance and Incentives for Medical Innovation (March 2006). NBER Working Paper No. w12080. Available at SSRN: https://ssrn.com/abstract=888282

Alan M. Garber (Contact Author)

Stanford University - Center for Primary Care and Outcomes Research ( email )

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Stanford, CA 94305-6019
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650-723-0920 (Phone)
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Government of the United States of America - Palo Alto Veterans Affairs Medical Center

Palo Alto, CA 94304
United States

National Bureau of Economic Research (NBER)

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Charles I. Jones

Stanford Graduate School of Business ( email )

Stanford GSB
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HOME PAGE: http://www.stanford.edu/~chadj

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Paul M. Romer

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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