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

2015; American Economic Association; Volume: 105; Issue: 7 Linguagem: Inglês

10.1257/aer.20131176

1944-7981

Eric Budish, Benjamin N. Roin, Heidi Williams,

Intellectual Property and Patents

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.