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

By: Craig Garthwaite, Rebecca Sachs and Ariel Dora Stern
  • Format:Electronic
  • | Language:English
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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.

Keywords

Pharmaceuticals; Medicaid; Innovation and Invention; Policy; Markets; Research and Development; Pharmaceutical Industry

Citation

Garthwaite, Craig, Rebecca Sachs, and Ariel Dora Stern. "Which Markets (Don't) Drive Pharmaceutical Innovation? Evidence From U.S. Medicaid Expansions." NBER Working Paper Series, No. 28755, May 2021.

About The Author

Ariel D. Stern

Technology and Operations Management
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