Health Care, Technological Change, and Altruistic Consumption Externalities
31 Pages Posted: 14 Sep 2006 Last revised: 6 Feb 2022
Date Written: January 2006
Abstract
Traditional economic analysis has proposed well known remedies to deal with consumption externalities and inefficient technological change in isolation, but lacks a general framework for addressing them jointly. We argue that the joint determination of R&D and consumption externalities is central to health care industries around the world generally, and for the pharmaceutical industry in particular. This is because technological change drives the expansion of the health care sector and altruism seems to motivate many public subsidies such as Medicaid in the US. We stress that standard remedies to the two problems in isolation are inefficient -- Pigouvian corrections to consumption externalities are inefficient under technological change and standard R&D stimuli are inefficient because they focus only on consumer and producer surplus, not the altruistic surplus accruing to non-consumers. We provide illustrative calculations of the dynamic inefficiency in the level of US R&D spending due to the inability of innovators to appropriate the altruistic surplus. We find that altruistic gains amount to about a quarter of consumer surplus in the baseline scenario. Our analysis implies that total R&D could be under-provided by as much as 60 percent.
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Accounting for Future Costs in Medical Cost-Effectiveness Analysis
-
Schumpeterian Profits in the American Economy: Theory and Measurement
-
Schumpeterian Profits in the American Economy: Theory and Measurement
-
Estimating the Impact of Medical Innovation: A Case Study of HIV Antiretroviral Treatments
By Mark Duggan and William N. Evans
-
Insurance and Incentives for Medical Innovation
By Alan M. Garber, Charles I. Jones, ...
-
Intellectual Property & External Consumption Effects: Generalizations from Pharmaceutical Markets
-
By Tomas Philipson and Anupam B. Jena
-
Advances in Cost-Effectiveness Analysis of Health Interventions
-
The Welfare Effects of Public Drug Insurance
By Darius N. Lakdawalla and Neeraj Sood
-
Surplus Appropriation from R&D and Health Care Technology Assessment Procedures
By Tomas Philipson and Anupam B. Jena