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Insurance and Incentives for Medical Innovation

Alan M. Garber, Charles Jones () and Paul Romer

No 12080, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: I1 O30 (search for similar items in EconPapers)
Date: 2006-03
New Economics Papers: this item is included in nep-com, nep-hea, nep-ias, nep-ino and nep-mic
Note: AG HC PR
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15) Track citations by RSS feed

Published as "Insurance and Incentives for Medical Innovation" (with Alan Garber and Paul Romer), Forum for Health Economics & Policy, 2006, Forum: Biomedical Research and the Economy: Article 4

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