American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Do Firms Underinvest in Long-Term Research? Evidence from Cancer Clinical Trials
American Economic Review
vol. 105,
no. 7, July 2015
(pp. 2044–85)
(Complimentary)
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)Citation
Budish, Eric, Benjamin N. Roin, and Heidi Williams. 2015. "Do Firms Underinvest in Long-Term Research? Evidence from Cancer Clinical Trials." American Economic Review, 105 (7): 2044–85. DOI: 10.1257/aer.20131176Additional Materials
JEL Classification
- D25 Intertemporal Firm Choice, Investment, Capacity, and Financing
- G31 Capital Budgeting; Fixed Investment and Inventory Studies; Capacity
- I11 Analysis of Health Care Markets
- L65 Chemicals; Rubber; Drugs; Biotechnology
- O31 Innovation and Invention: Processes and Incentives
- O34 Intellectual Property and Intellectual Capital