NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Kyle R. Myers

Health Care Management
& Economics Department
The Wharton School
University of Pennsylvania
4th Floor, Colonial Penn Center
3641 Locust Walk
Philadelphia, PA 19104-6218

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NBER Working Papers and Publications

October 2016A Ricardian-Demand Explanation for Changing Pharmaceutical R&D Productivity
with Mark Pauly: w22720
This paper examines trends in the aggregate productivity of the pharmaceutical sector over the past three decades. We incorporate Ricardo’s insight about demand-driven productivity in settings of variable scarce resources, and estimate the industry’s responsiveness to changes in demand over this timeframe using therapeutic class-specific data. In contrast to many analyses, our empirical estimates indicate that the industry has “met demand” with remarkable consistency since the late-1980s. The growth in total R&D spending, and therefore R&D costs per new drug, appear to have been profitable and productive investments. While we identify a significant increase in the industry’s fixed costs - the intercept of the production function - we find no decline in the marginal productivity of industry...
 
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