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Do firms underinvest in long-term research? Evidence from cancer clinical trials

Eric Budish, Benjamin N. Roin, Heidi Williams

NBER Working Paper No. 19430
Issued in September 2013, Revised in February 2015
NBER Program(s):Aging, Health Care, Industrial Organization, Law and Economics, Public Economics, Productivity, Innovation, and Entrepreneurship

We investigate whether private research investments are distorted away from long-term projects. Our theoretical model highlights two potential sources of this distortion: short-termism and the fixed patent term. Our empirical context is cancer research, where clinical trials – and hence, project durations – are shorter for late-stage cancer treatments relative to early-stage treatments or cancer prevention. Using newly constructed data, we document several sources of evidence that together show private research investments are distorted away from long-term projects. The value of life-years at stake appears large. We analyze three potential policy responses: surrogate (non-mortality) clinicaltrial endpoints, targeted R&D subsidies, and patent design.

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Document Object Identifier (DOI): 10.3386/w19430

Published: “Do Firms Underinvest in Long-Term Research? Evidence from Cancer Clinical Trials” (with Benjamin Roin and Heidi Williams) American Economic Review, Vol 105(7), 2044-2085. citation courtesy of

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