Journal
AMERICAN ECONOMIC REVIEW
Volume 105, Issue 7, Pages 2044-2085Publisher
AMER ECONOMIC ASSOC
DOI: 10.1257/aer.20131176
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Funding
- National Institute on Aging
- NIH Common Fund, Office of the NIH Director [U01-AG046708]
- NIA [T32-AG000186]
- NSF [1151497]
- Direct For Social, Behav & Economic Scie
- SBE Off Of Multidisciplinary Activities [1151497] Funding Source: National Science Foundation
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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)
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