Do firms underinvest in long-term research? Evidence from cancer clinical trials
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.
This paper was previously circulated under the title “Do fixed patent terms distort innovation? Evidence from cancer clinical trials.” We thank the editor and three anonymous referees for detailed and thoughtful comments that greatly improved the paper. We thank Meru Bhanot, David Burk, Toby Chaiken, Brian Cordonnier, Max Cytrynbaum, Greg Howard, Niels Joaquin, Megan McGrath, and Ana Medrano-Fernandez for excellent research assistance. Daron Acemoglu, Chris Adams, David Autor, Nick Bloom, Tim Bresnahan, Raj Chetty, Joe Doyle, Dan Fetter, Amy Finkelstein, Ray Fisman, Alberto Galasso, Matt Gentzkow, Wes Hartmann, Amanda Kowalski, Anup Malani, Matt Notowidigdo, Felix Oberholzer-Gee, Ariel Pakes, David Ridley, Al Roth, Jon Skinner, Alan Sorensen, Scott Stern, Glen Weyl, and seminar participants at the 2014 and 2015 ASSA meetings, BEA, Boston University Law School, Carnegie Mellon, the CBO, Chicago Booth, the Cornell Empirical Patent Law Conference, ETH-Zurich, the FTC, Georgia Tech, Harvard, Harvard Law School, LSE, MIT, the NBER (Health Care, Industrial Organization, Law and Economics, Productivity, and Public Economics), the Northwestern Kellogg Healthcare Markets conference, Princeton, Stanford, Toulouse, U-Arizona, UC-Berkeley, UC-Berkeley Haas, UCSD, UCLA Anderson, UIUC, U-Michigan, U-Penn Wharton, UT-Austin, UVA, Wellesley, and Yale Law School provided very helpful comments. Research reported in this publication was supported by the National Institute on Aging and the NIH Common Fund, Office of the NIH Director, through Grant U01-AG046708 to the National Bureau of Economic Research (NBER); the content is solely the responsibility of the authors and does not necessarily represent the official views of the NIH or NBER. Financial support from NIA Grant Number T32-AG000186 to the NBER, NSF Grant Number 1151497, the Chicago Booth Initiative on Global Markets, the NBER Innovation Policy and the Economy program, and the Petrie-Flom Center at Harvard Law School is also gratefully acknowledged. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
“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