Publications
Publications
- Fall 2019
- RAND Journal of Economics
Endogenous Productivity of Demand-Induced R&D: Evidence from Pharmaceuticals
By: Kyle Myers and Mark Pauly
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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