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.
University of Chicago Booth School of Business, 5807 South Woodlawn Avenue, Chicago IL 60637, eric.budish@chicagobooth.edu.
Eric
E
Budish
MIT Sloan School of Management, 50 Memorial Drive, E62-465, Cambridge MA 02142, broin@mit.edu.
Benjamin N
BN
Roin
MIT Department of Economics and NBER, 77 Massachusetts Avenue, E17-222, Cambridge MA 02139, heidiw@mit.edu.
Heidi
H
Williams