NBER Working Papers by Stephane Mechoulan

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 th...

There is a long-standing literature that recognizes that an efficient solution in correcting a consumption externality is through applying subsidies and taxes that line up private incentives with social ones. An equally long-standing literature tackles the appropriate methods of generating the efficient amount of R&D into goods that only have private consumption effects, e.g. the analysis of the welfare effects of patent regulations. This paper analyzes the joint problem of the optimal provision of R&D and consumption incentives for goods that at the same time undergo technological change and have external consumption effects. For good with external effects, just as is the case for goods with only private effects, ex-post static efficiency may have to be sacrificed for dynamic efficiency. ...