Do Firms Underinvest in Long-Term Research? Evidence from Cancer Clinical Trials
Top Cited Papers
- 1 July 2015
- journal article
- research article
- Published by American Economic Association in American Economic Review
- Vol. 105 (7), 2044-2085
- https://doi.org/10.1257/aer.20131176
Abstract
We investigate whether private research investments are distorted away from long-term projects. Our theoretical model highlights two potential sources of this distortion: short-termism and the fixed patent term. Our empirical context is cancer research, where clinical trials -- and hence, project durations -- are shorter for late-stage cancer treatments relative to early-stage treatments or cancer prevention. Using newly constructed data, we document several sources of evidence that together show private research investments are distorted away from long-term projects. The value of life-years at stake appears large. We analyze three potential policy responses: surrogate (non-mortality) clinical-trial endpoints, targeted R&D subsidies, and patent design. (JEL D92, G31, I11, L65, O31, O34)Keywords
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