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Publications
  • Fall 2019
  • Article
  • RAND Journal of Economics

Endogenous Productivity of Demand-Induced R&D: Evidence from Pharmaceuticals

By: Kyle Myers and Mark Pauly
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Abstract

We examine trends in the productivity of the pharmaceutical sector over the past three decades. Motivated by Ricardo’s insight that productivity and rents are endogenous to demand when inputs are scarce, we examine the industry’s aggregate R&D production function. Using exogenous demand shocks to instrument investments, we find that demand growth can explain a large portion of R&D growth. Returns to scale have been stable whereas total factor productivity has declined significantly. Predicted rents based on our estimates and Ricardo’s theory closely match the trends we observe.

Keywords

Innovation; Productivity; Pharmaceuticals; Innovation and Invention; Performance Productivity; Pharmaceutical Industry

Citation

Myers, Kyle, and Mark Pauly. "Endogenous Productivity of Demand-Induced R&D: Evidence from Pharmaceuticals." RAND Journal of Economics 50, no. 3 (Fall 2019): 591–614.
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About The Author

Kyle R. Myers

Technology and Operations Management
→More Publications

More from the Authors

    • July 2022
    • American Economic Review

    Estimating Spillovers from Publicly Funded R&D: Evidence from the US Department of Energy

    By: Kyle Myers and Lauren Lanahan
    • March 2022
    • Faculty Research

    Digital Manufacturing at Amgen

    By: Shane Greenstein, Kyle R. Myers and Sarah Mehta
    • November 2021
    • Faculty Research

    Kermit PPI

    By: Kyle Myers, Matt Grennan and Sarah Mehta
More from the Authors
  • Estimating Spillovers from Publicly Funded R&D: Evidence from the US Department of Energy By: Kyle Myers and Lauren Lanahan
  • Digital Manufacturing at Amgen By: Shane Greenstein, Kyle R. Myers and Sarah Mehta
  • Kermit PPI By: Kyle Myers, Matt Grennan and Sarah Mehta
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