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Which Markets (Don't) Drive Pharmaceutical Innovation? Evidence From U.S. Medicaid Expansions

Author

Listed:
  • Craig Garthwaite
  • Rebecca Sachs
  • Ariel Dora Stern

Abstract

Pharmaceutical innovation policy involves managing a tradeoff between high prices for new products in the short-term and stronger incentives to develop products for the future. Prior research has documented a causal relationship between market size and pharmaceutical research and development (R&D) activities. The existing literature, however, provides no evidence of how this relationship varies across markets. We investigate whether recent expansions in state Medicaid programs caused an increase in R&D. We find no evidence of a response, potentially a result of Medicaid’s low reimbursement for pharmaceuticals, suggesting low(er) price markets may have different dynamics with respect to innovation policy.

Suggested Citation

  • Craig Garthwaite & Rebecca Sachs & Ariel Dora Stern, 2021. "Which Markets (Don't) Drive Pharmaceutical Innovation? Evidence From U.S. Medicaid Expansions," NBER Working Papers 28755, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:28755
    Note: EH PE PR
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    Cited by:

    1. Clark, Robert & Fabiilli, Christopher & Lasio, Laura, 2022. "Collusion in the US generic drug industry," International Journal of Industrial Organization, Elsevier, vol. 85(C).
    2. Kyle, Margaret K., 2022. "Incentives for pharmaceutical innovation: What’s working, what’s lacking," International Journal of Industrial Organization, Elsevier, vol. 84(C).

    More about this item

    JEL classification:

    • H0 - Public Economics - - General
    • I1 - Health, Education, and Welfare - - Health
    • L43 - Industrial Organization - - Antitrust Issues and Policies - - - Legal Monopolies and Regulation or Deregulation
    • L5 - Industrial Organization - - Regulation and Industrial Policy
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights

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