Insurance and Incentives for Medical Innovation

Insurance and Incentives for Medical Innovation This paper studies the interactions between health insurance and the incentives for innovation. Although we focus on pharmaceutical innovation, our discussion applies to other industries producing novel technologies for sale in markets with subsidized demand. Standard results in the growth and productivity literatures suggest that firms in many industries may possess inadequate incentives to innovate. Standard results in the health literature suggest that health insurance leads to the overutilization of health care. Our study of innovation in the pharmaceutical industry emphasizes the interaction of these incentives. Because of the large subsidies to demand from health insurance, limits on the lifetime of patents and possibly limits on monopoly pricing may be necessary to ensure that pharmaceutical companies do not possess excess incentives for innovation. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Forum for Health Economics & Policy de Gruyter

Insurance and Incentives for Medical Innovation

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Publisher
de Gruyter
Copyright
©2011 Walter de Gruyter GmbH & Co. KG, Berlin/Boston
ISSN
1558-9544
eISSN
1558-9544
DOI
10.2202/1558-9544.1006
Publisher site
See Article on Publisher Site

Abstract

This paper studies the interactions between health insurance and the incentives for innovation. Although we focus on pharmaceutical innovation, our discussion applies to other industries producing novel technologies for sale in markets with subsidized demand. Standard results in the growth and productivity literatures suggest that firms in many industries may possess inadequate incentives to innovate. Standard results in the health literature suggest that health insurance leads to the overutilization of health care. Our study of innovation in the pharmaceutical industry emphasizes the interaction of these incentives. Because of the large subsidies to demand from health insurance, limits on the lifetime of patents and possibly limits on monopoly pricing may be necessary to ensure that pharmaceutical companies do not possess excess incentives for innovation.

Journal

Forum for Health Economics & Policyde Gruyter

Published: Mar 29, 2006

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