NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Financial Health Economics

Tomas Philipson, Ralph Koijen, Harald Uhlig

NBER Working Paper No. 20075
Issued in April 2014, Revised in June 2015
NBER Program(s):   HE   EFG

We provide a theoretical and empirical analysis of the link between financial and real health care markets. This link is important as financial returns drive investment in medical research and development (R&D), which in turn, affects real spending growth. We document a “medical innovation premium” of 4-6% annually for equity returns of firms in the health care sector. We interpret this premium as compensating investors for government-induced profit risk, and we provide supportive evidence for this hypothesis through company filings and abnormal return patterns surrounding threats of government intervention. We quantify the implications of the premium for the growth in real health care spending by calibrating our model to match historical trends, predicting the share of GDP devoted to health care to be 32% in the long run. Policies that had removed government risk would have led to more than a doubling of medical R&D and would have increased the current share of health care spending by more than 3% of GDP.

download in pdf format
   (323 K)

email paper

The NBER Bulletin on Aging and Health provides summaries of publications like this.  You can sign up to receive the NBER Bulletin on Aging and Health by email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w20075

Users who downloaded this paper also downloaded* these:
Egan and Philipson w19280 International Health Economics
Koijen and Yogo w19568 Shadow Insurance
Heckman, Humphries, Veramendi, and Urzúa w19971 Education, Health and Wages
Solon, Haider, and Wooldridge w18859 What Are We Weighting For?
di Giovanni, Levchenko, and Mejean w20061 Firms, Destinations, and Aggregate Fluctuations
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us