Do Firms Underinvest in Long-Term Research? Evidence from Cancer Clinical Trials
American Economic Review
vol. 105,
no. 7, July 2015
(pp. 2044-85)
(Complimentary)
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) clinical-trial endpoints, targeted R&D subsidies, and patent design. (JEL D92, G31, I11, L65, O31, O34)Citation
Budish, Eric, Benjamin N. Roin, and Heidi Williams. 2015. "Do Firms Underinvest in Long-Term Research? Evidence from Cancer Clinical Trials." American Economic Review, 105 (7): 2044-85. DOI: 10.1257/aer.20131176Additional Materials
JEL Classification
- D25 Intertemporal Firm Choice, Investment, Capacity, and Financing
- G31 Capital Budgeting; Fixed Investment and Inventory Studies; Capacity
- I11 Analysis of Health Care Markets
- L65 Chemicals; Rubber; Drugs; Biotechnology
- O31 Innovation and Invention: Processes and Incentives
- O34 Intellectual Property and Intellectual Capital