Do Firms Underinvest in Long-Term Research? Evidence from Cancer Clinical Trials | Zendy

Eric Budish | Zendy; Benjamin N. Roin | Zendy; Heidi Williams | Zendy

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Do Firms Underinvest in Long-Term Research? Evidence from Cancer Clinical Trials

Author(s) -

Eric Budish,

Benjamin N. Roin,

Heidi Williams

Publication year - 2015

Publication title -

american economic review

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 16.936

H-Index - 297

eISSN - 1944-7981

pISSN - 0002-8282

DOI - 10.1257/aer.20131176

Subject(s) - context (archaeology) , subsidy , clinical trial , economics , cancer prevention , empirical evidence , public economics , actuarial science , cancer , medicine , biology , paleontology , philosophy , epistemology , market economy

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) clinicaltrial endpoints, targeted R&D subsidies, and patent design.

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