Private versus social incentives for pharmaceutical innovation
González, Paula (Universidad Pablo de Olavide)
Macho Stadler, Inés (Universitat Autònoma de Barcelona. Departament d'Economia i d'Història Econòmica)
Pérez-Castrillo, David (Universitat Autònoma de Barcelona. Departament d'Economia i d'Història Econòmica)

Date:	2016
Abstract:	We provide a theoretical framework to contribute to the current debate regarding the tendency of pharmaceutical companies to direct their R&D toward marketing products that are follow-on drugs of already existing drugs, rather than toward the development of breakthrough drugs. We construct a model with a population of patients who can be treated with drugs that are horizontally and vertically differentiated. In addition to a pioneering drug, a new drug can be marketed as the result of an innovative process. We analyze physician prescription choices and the optimal pricing decision of an innovative firm. We also characterize the incentives of the innovative firm to conduct R&D activities, disentangling the quest for breakthrough drugs from the firm effort to develop follow-on drugs. Our results offer theoretical support for the conventional wisdom that pharmaceutical firms devote too many resources to conducting R&D activities that lead to incremental innovations.
Grants:	Ministerio de Economía y Competitividad ECO2012-31962 Ministerio de Economía y Competitividad ECO2013-43011-P Agència de Gestió d'Ajuts Universitaris i de Recerca 2014-SGR-142 Ministerio de Economía y Competitividad ECO2015-63679-P Ministerio de Economía y Competitividad SEV-2015-0563
Rights:	Aquest document està subjecte a una llicència d'ús Creative Commons. Es permet la reproducció total o parcial, la distribució, i la comunicació pública de l'obra, sempre que no sigui amb finalitats comercials, i sempre que es reconegui l'autoria de l'obra original. No es permet la creació d'obres derivades.
Language:	Anglès
Document:	Article ; recerca ; Versió acceptada per publicar
Subject:	Pharmaceuticals ; R&D activities ; Me-too drugs ; Breakthrough drugs ; Incremental innovation ; Radical innovation
Published in:	Journal of health economics, Vol. 50 (2016) , p. 286-297, ISSN 0167-6296

DOI: 10.1016/j.jhealeco.2015.12.003

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