Private versus Social Incentives for Pharmaceutical Innovation

Paula González, Ines Macho-Stadler and David Perez-Castrillo

No 15.07, Working Papers from Universidad Pablo de Olavide, Department of Economics

Abstract: There is a great deal of debate in society regarding the tendency of pharmaceutical companies to direct their R&D toward marketing products that are "follow-on" drugs of already existing drugs, rather than the development of breakthrough drugs. This paper provides a theoretical framework to study firm incentives for pharmaceutical innovation that disentangle the quest for breakthrough drugs from the firm effort to develop follow-on drugs. We construct a model with a population of patients treated with one of two --horizontally and vertically differentiated-- drugs. One of the drugs is the pioneer; the other is the result of an innovative process by a firm that seeks to achieve an improvement over the existing drug. Our results offer theoretical support for the conventional wisdom that pharmaceutical firms devote too many resources to conducting R&D activities that lead to incremental innovations.

Keywords: pharmaceuticals; R&D activities; me-too drugs; breakthrough drugs; incremental innovation; radical innovation. (search for similar items in EconPapers)
JEL-codes: I1 L1 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2015-05
New Economics Papers: this item is included in nep-com, nep-cse, nep-cta, nep-hea, nep-ind and nep-ino
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Private versus social incentives for pharmaceutical innovation (2016)
Working Paper: Private versus Social Incentives for Pharmaceutical Innovation (2016)
Working Paper: Private versus Social Incentives for Pharmaceutical Innovation (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:pab:wpaper:15.07

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