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American Economic Review Vol. 105 No. 7 2015

Do Firms Underinvest in Long-Term Research? Evidence from Cancer Clinical Trials

Eric Budish1; Benjamin N. Roin2; Heidi Williams3

1 Booth School of Business, University of Chicago, 5807 South Woodlawn Avenue, Chicago, IL 60637 (e-mail: ) · 2 Sloan School of Management, MIT, 50 Memorial Drive, E62-465, Cambridge, MA 02142 (e-mail: ) · 3 Department of Economics, MIT, 77 Massachusetts Avenue, E17-222, Cambridge, MA 02139, and NBER (e-mail: )

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Abstract

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) clinical-trial endpoints, targeted R&D subsidies, and patent design.

DOI
10.1257/aer.20131176
Volume
105
Issue
7
Pages
2044-2085
Language
en
Sources
crossref openalex bibtex:phds-export.bib

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