Which Markets (Don't) Drive Pharmaceutical Innovation? Evidence From U.S. Medicaid Expansions

Craig Garthwaite, Rebecca Sachs and Ariel Dora Stern

No 28755, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Pharmaceutical innovation policy involves managing a tradeoff between high prices for new products in the short-term and stronger incentives to develop products for the future. Prior research has documented a causal relationship between market size and pharmaceutical research and development (R&D) activities. The existing literature, however, provides no evidence of how this relationship varies across markets. We investigate whether recent expansions in state Medicaid programs caused an increase in R&D. We find no evidence of a response, potentially a result of Medicaid’s low reimbursement for pharmaceuticals, suggesting low(er) price markets may have different dynamics with respect to innovation policy.

JEL-codes: H0 I1 L43 L5 O3 (search for similar items in EconPapers)
Date: 2021-05
New Economics Papers: this item is included in nep-com, nep-hea, nep-ind and nep-ino
Note: EH PE PR
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