Do firms underinvest in long-term research? Evidence from cancer clinical trials. Budish, E., Roin, B. N, & Williams, H.
abstract   bibtex   
This paper investigates whether private research investments are distorted away from long-term projects, by which we mean projects with long time lags between initial discovery (“invention”) and the availability of a commercially viable product (“commercialization”). We present a simple theoretical model to formalize two potential sources of this distortion: first, excess impatience of private firms relative to the social planner; and second, the fact that patents – as currently designed – provide little effective incentive to develop technologies with long commercialization lags. We then explore this distortion empirically in the context of cancer research, where clinical trials - and hence, commercialization lags – are shorter for drugs targeting late-stage cancer patients, relative to drugs targeting early-stage cancer patients or cancer prevention. Using a newly constructed data set on cancer clinical trial investments, we provide several sources of evidence which together are consistent with private research investments being distorted away from long-term projects. Back-of-the-envelope calculations suggest that the value of life-years at stake is large. We discuss three specific policy responses - surrogate (non-mortality) clinical trial endpoints, targeted R&D subsidies, and patent design - and provide empirical evidence that surrogate endpoints can be effective in practice.
@article{budish_rms_nodate-1,
	title = {Do firms underinvest in long-term research? {Evidence} from cancer clinical trials},
	abstract = {This paper investigates whether private research investments are distorted away from long-term projects, by which we mean projects with long time lags between initial discovery (“invention”) and the availability of a commercially viable product (“commercialization”). We present a simple theoretical model to formalize two potential sources of this distortion: first, excess impatience of private firms relative to the social planner; and second, the fact that patents – as currently designed – provide little effective incentive to develop technologies with long commercialization lags. We then explore this distortion empirically in the context of cancer research, where clinical trials - and hence, commercialization lags – are shorter for drugs targeting late-stage cancer patients, relative to drugs targeting early-stage cancer patients or cancer prevention. Using a newly constructed data set on cancer clinical trial investments, we provide several sources of evidence which together are consistent with private research investments being distorted away from long-term projects. Back-of-the-envelope calculations suggest that the value of life-years at stake is large. We discuss three specific policy responses - surrogate (non-mortality) clinical trial endpoints, targeted R\&D subsidies, and patent design - and provide empirical evidence that surrogate endpoints can be effective in practice.},
	language = {en},
	author = {Budish, Eric and Roin, Benjamin N and Williams, Heidi},
	pages = {75},
	file = {Budish et al. - Do firms underinvest in long-term research Evidenc.pdf:/Users/neil.hawkins/Zotero/storage/AWMYVYHR/Budish et al. - Do firms underinvest in long-term research Evidenc.pdf:application/pdf},
}

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