"The Elasticity of Science"
American Economic Journal: Applied Economics (Forthcoming)
This paper identifies the degree to which scientists are willing to change the direction of their work in exchange for resources. Data from the National Institutes of Health is used to estimate how scientists respond to targeted funding opportunities. Inducing a scientist to change their direction by a small amount – to work on marginally different topics – requires a substantial amount funding in expectation. The switching costs of science are large. The productivity of grants is also estimated, and it appears the additional costs of targeted research may be more than offset by more productive scientists pursuing these grants.
"Endogenous Productivity of Demand-Induced R&D: Evidence from Pharmaceuticals"
with Mark Pauly
RAND Journal of Economics, 50 (3), 591-614.
Download here [Last revised: January 2019]
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.
"Physician-Industry Interactions: Persuasion and Welfare"
with Matt Grennan, Ashley Swanson and Aaron Chatterji
In markets where consumers seek expert advice regarding purchases, firms seek to influence experts, raising concerns about biased advice. Assessing firm-expert interactions requires identifying their causal impact on demand, amidst frictions like market power. We study pharmaceutical firms’ payments to physicians, leveraging instrumental variables based on regional spillovers from hospitals’ conflict-of-interest policies and market shocks due to patent expiration. We find that the average payment increases prescribing of the focal drug by 73 percent. Our structural model estimates indicate that payments decrease total surplus, unless payments are sufficiently correlated with information (vs. persuasion) or clinical gains not captured in demand.
"R&D Spillovers, Two Ways"
with Lauren Lanahan
A goal of many R&D subsidies is not to just increase the level of R&D in the economy, but to direct it. The impact of these investments depends on spillovers across geographic and technological space. We evaluate how both of these spillovers play out for the U.S. Department of Energy’s Small Business Innovation Research program. We infer input-output links using the text of federal funding announcements and patent abstracts, and identify the marginal product of public funds using state-specific grant matching policies. Focusing on new patents that are closely related to the governments’ objectives yields cost estimates much larger than would be implied by traditional analyses that ignore spillovers across technological areas. But positive spillovers across geography, within technological areas, are a significant countervailing force that multiplies output. These additional patents come from within the state where the funding was directed, while inventors in other states substitute away. The limitations of relying on traditional citation measures to capture spillovers are illustrated, and inventors from outside of the U.S. are also examined.
"Pharmaceutical Trends, Not What They Seem"
with Mark Pauly
In Managing Discovery in the Life Sciences, eds. Philip Rea, Mark Pauly, and Lawton Burns, pp. 18-42. Cambridge: Cambridge University Press, 2018.
"The Direction of Biomedical Science"
Prepared for the NBER-IFS International Network on the Value of Medical Research (See more here).
How should the allocation of science in the economy be determined? How do scientists choose to pursue different types of trajectories? How do public policies influence these macro- and micro-level outcomes? This survey outlines longstanding questions and recent research surrounding the economics of science with a focus on biomedical research.