Representation, Innovation, and Product Adoption

During research and development, firms must decide which types of individuals to engage in developing and testing their products. We investigate how lowering the cost of including one group shapes its representation, subsequent innovation, and product adoption. In 2000, Medicare expanded coverage of clinical trial costs for elderly trial participants, a historically underrepresented group in drug development. This policy increases representation: trial sponsors expand trial eligibility to include elderly participants and increase the share of elderly participants. We find an immediate and large increase in the number of clinical trials for diseases common among the elderly, with the largest increase in drugs not yet approved and in approved drugs tested in new diseases. We document an increase in drug utilization of newly tested drugs among elderly individuals and analyze trial results, adverse events, and drug approvals. Our findings show how financial incentives can increase representation in product development and shift the rate, direction, and adoption of innovation to potentially benefit underserved groups.