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The Economics of Pharmaceutical and Medical Innovation

Paper Session

Saturday, Jan. 3, 2026 10:15 AM - 12:15 PM (EST)

Philadelphia Marriott Downtown
Hosted By: International Health Economics Association
  • Chair: John Cawley, IHEA

Data Privacy and Medical Innovation: The Case of GDPR

Jennifer Kao
,
University of California-Los Angeles
Sukhun Kang
,
University of California-Santa Barbara

Abstract

We examine how data privacy regulation affects healthcare innovation and research
collaboration. The European Union’s General Data Protection Regulation (GDPR)
aims to enhance data security and individual privacy, but may also impose costs to
data collection and sharing critical to clinical research. Focusing on the
pharmaceutical sector, where timely access and the ability to share patient-level data
plays an important role drug development, we use a difference-in-differences design
exploiting variation in firms’ pre-GDPR reliance on EU trial sites. We find that GDPR
led to a significant decline in clinical trial activity: affected firms initiated fewer trials,
enrolled fewer patients, and operated at fewer trial sites. Overall collaborative clinical
trials also declined, driven by a reduction in new partnerships, while collaborations
with existing partners modestly increased. The decline in collaborations was driven
among younger firms, with little variation by firm size. Our findings highlight a trade-
off between stronger privacy protections and the efficiency of healthcare innovation,
with implications for how regulation shapes the rate and composition of subsequent
R&D.

Diffusing Innovations Under Market Competition: Evidence from Drug-Eluting Stents

Ginger Jin
,
University of Maryland-College Park
Hsienming Lien
,
National Chengchi University
Xuezhen Tao
,
Shanghai University of Finance and Economics

Abstract

Diffusing Innovations Under Market Competition: Evidence from Drug-Eluting
Stents
Ginger Jin, University of Maryland College Park jin@econ.umd.edu; Hsienming Lien,
National Chengchi University hsienminglien@gmail.com; Xuezhen Tao, Shanghai
University of Finance and Economics tao.xuezhen@mail.shufe.edu.cn
This paper examines how market structure and government policy shape the
diffusion of medical innovations through hospitals. Using detailed patient-level data
from Taiwan’s National Health Insurance system, we estimate a structural model of
hospital competition in drug-eluting stent (DES) markets. Our model incorporates
patient demand for DES treatments and hospitals’ strategic decisions regarding DES
portfolio composition and pricing. Counterfactual analyses reveal three key findings:
First, increased competition reduces DES prices but decreases hospitals’ incentives
to adopt new DES models, resulting in partial innovation passthrough. Second,
selective contracting can achieve quadruple wins by simultaneously increasing
consumer surplus, maintaining hospitals’ adoption incentives, controlling government
expenditures, and motivating covered manufacturers to offer wholesale discount for
sales gains. Third, patient coupons targeting the poorest 10% can redistribute

consumer surplus towards low-income patients, but has limited impact on overall
market outcomes. These results highlight the importance of considering both market
structure and reimbursement design in promoting medical innovation diffusion.

Optimal Push, Pull, and Failure Funding for Global Health

David Ridley
,
Duke University
Peng Sun
,
Duke University
Chenxi Xu
,
Duke University

Abstract

Malaria and tuberculosis each cause more than half a million deaths each year. However, commercial incentives for developing drugs and vaccines for malaria and other tropical diseases remain weak. Governments and nonprofits address these market failures through push (e.g., grants) and pull (e.g., prizes) mechanisms. We propose a third approach: the funder pays only if the firm fails, reimbursing part of its testing costs. This failure insurance is optimal when markets are large enough to reward success but too small to spur investment. The mechanism addresses both adverse selection and moral hazard. Failure insurance, like a forgivable loan, is preferred for tuberculosis if testing costs are below \$1 billion. Tuberculosis affects many people in both high- and low-income countries, unlike malaria. For most tropical diseases, including malaria, we recommend pull funding with supplemental push support. These findings challenge current push-heavy practice and have broader relevance for innovation policy.

Improving the Availability of Stem-Cell Donors: A Natural Field Experiment

Daniel Wiesen
,
University of Cologne
Michael Haylock
,
BCMED
Patrick Kampkötter
,
University of Tuebingen
Mario Macis
,
Johns Hopkins University
Susanne Seitz
,
DKMS

Abstract

Attrition of stem-cell donors at the confirmatory typing stage, the final screening step
before donation, reduces the supply of life-saving transplants by 20% to 50%
worldwide. In a natural field experiment with DKMS Germany, a major stem-cell
donor registry, we randomly vary the framing of email and letter invitations to an
existing initiative, aimed at reducing donor attrition at the confirmatory typing stage
and profiling donors on future availability. The initiative asks donors to fill out a health
questionnaire and to report any periods where a donor is absent longer than three
weeks and not available to donate. In the three experimental conditions, each with
8,500 registered donors, invitations are framed so that donors are asked to join a
team of (i) “quickly available” donors or (ii) “highly committed” donors. The baseline
group receives a letter (and email) with neither framing. We also compare our
treatments to a pure control that got no invitation and the previous letter DKMS used.
Our results show that the quickly available letter halved donor attrition in the first
year compared to the control letter after receiving the letter and by 5.4% overall.
Second, the baseline and committed letters sort donors on availability persistently,
whereas the quickly available letter does not. We find that the committed group

allows one to identify a group of potential donors that persistently behave in a
manner consistent with being more committed, as measured by advance absence
reports (15.5% more than control letter), and completing another follow-up health
screening two years after the original invitation (9.4% more than control). Overall,
this suggests that the causal effect of participation as such is not important, but that
the screening of donors using letters may be useful in settings where there is already
a large enough pool of registry members to choose from.

Discussant(s)
Jie Fang
,
McGill University
Lucy Xiaolu Wang
,
University of Massachusetts-Amherst
Andrew Mulcahy
,
RAND Corporation
Hannah Bae
,
Michigan State University
JEL Classifications
  • I1 - Health