Carnegie Mellon Universtiy
Graduate School of Industrial Admin.
Pittsburgh, PA 15213
Institutional Affiliation: Carnegie Mellon University
NBER Working Papers and Publications
|May 2018||Innovation and Diffusion of Medical Treatment|
with Barton H. Hamilton, Andrés Hincapié, Nicholas W. Papageorge: w24577
This paper develops and estimates a dynamic structural model of demand for a multi-attribute product. The demand side equilibrium supports a product spectrum, the characteristics of which evolve over time in response to supply innovations induced by the composition and extent of aggregate demand. The direction and speed of innovation is inefficient because individuals create an externality by not accounting for their influence on the discovery process. We apply the model to drugs invented to combat the HIV epidemic, during which frequent, incremental innovations in medication were punctuated by sporadic breakthroughs. In this application products differ in their efficacy and their propensity to cause side effects. Our biennial data on four American cities track a replenished panel of indiv...