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  5. Reinsurance Subsidies, Clinical Trial Disclosures, and Pharma Innovation
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Reinsurance Subsidies, Clinical Trial Disclosures, and Pharma Innovation

Paper Session

Sunday, Jan. 4, 2026 2:30 PM - 4:30 PM (EST)

Philadelphia Marriott Downtown, Room 309
Hosted By: Econometric Society
  • Chair: Panle Jia Barwick, University of Wisconsin-Madison and NBER

Reinsurance, Financial Frictions, and Subsidy Efficiency: Evidence from Health Insurance

Anran Li
,
Cornell University

Abstract

We study the effectiveness and design of reinsurance subsidies. Reinsurance takes the form of ex-post payments from either private reinsurers or the government to insurers for incurring high-cost enrollees. We argue that reinsurance reduces insurers' financial friction, i.e., additional costs incurred for taking on risk. We show evidence of health insurers internalizing financial frictions with their private reinsurance purchases. In response to public reinsurance subsidies, insurers purchase less private reinsurance and lower health insurance premiums, with an estimated pass-through of 1.3. We develop and estimate an equilibrium model to decompose the pass-through into claims reduction, financial friction alleviation, and competitive effects. Simulations further reveal that reinsurance subsidies to insurers can be more efficient than premium subsidies to consumers in reducing prices and enhancing competition. Our results highlight the importance of addressing supply-side frictions to foster effective competition.

Disclosure and the Pace of Drug Development

Colleen Cunningham
,
London Business School
Florian Ederer
,
Boston University
Charles Hodgson
,
Yale University
Zhichun Wang
,
Yale University

Abstract

Policies that mandate disclosure of innovative project outcomes aim to increase innovation by limiting wasteful duplicative innovation. Yet, such policies change not only the ex-post information environment but also firms' ex-ante innovation incentives. Firms may slow down their own innovation efforts in anticipation of increased disclosure by others. We examine the innovation-related impacts of the 2017 FDA Final Rule amendment, which mandates disclosure of clinical trial results for pharmaceutical firms. We show that the policy hastened and increased disclosure of results for clinical trials post-completion, but also increased the time to completion of clinical trials, the time between early phases of clinical trials, and delays in development-related investments. We provide evidence consistent with mandated disclosure leading firms to wait to learn from their competitors. Our results suggest that mandating disclosure may slow innovation when there is value to waiting.

From Free Rider to Innovator: The Rise of China’s Drug Development

Hongyuan Xia
,
Cornell University
Tianli Xia
,
University of Rochester
Panle Jia Barwick
,
University of Wisconsin-Madison and NBER

Abstract

China is rapidly narrowing the innovation gap with the United States and is poised to play a central role in shaping the future of global health. This is not achieved directly through R&D subsidies, as China has done in other sectors, but through market-oriented reforms and reduction of misallocation in government funds.

Discussant(s)
Tianli Xia
,
University of Rochester
Anran Li
,
Cornell University
Florian Ederer
,
Boston University
JEL Classifications
  • L1 - Market Structure, Firm Strategy, and Market Performance
  • I1 - Health