Working Papers

"Research Subsidy Spillovers, Two Ways"

with Lauren Lanahan 

Download here [Last revised: March 2020]

We study how the outputs of research spill over technological and geographic space in the context of the U.S. Small Business Innovation Research program. We infer input-output links using text analyses and identify the marginal costs of producing patents using noncompetitive grant matching policies. Due to technological spillovers, the cost of spurring patents related to specific technologies are much larger than the costs of spurring any kind of patent. Due to geographic spillovers, roughly 80% of the net patents produced by the program are from inventors that do not directly receive grants; the domestic/foreign split of output is about 75/25. The large spillovers across these two dimensions imply that the cost effectiveness of research subsidies can vary widely depending on which outputs count. Within the U.S., we identify regions likely responsible for these spillovers, which reveals a pattern that suggests the government must trade off its ability to influence either the rate or direction of invention.

"Physician-Industry Interactions: Persuasion and Welfare"

with Matt Grennan, Ashley Swanson and Aaron Chatterji

[Under revision: March 2020]

In markets where consumers seek expert advice regarding purchases, firms seek to influence experts, raising concerns about biased advice. We combine a model of supply and demand with a local instrumental variables strategy based on regional spillovers from academic medical center conflict-of-interest policies to estimate the distribution of marginal treatment effects of pharmaceutical firm payments on physician prescribing, accounting for frictions like market power, negotiated prices, and insured demand. We find substantial heterogeneity across physicians in expected response to payments. Firms target payments to physicians with: a larger expected response, larger patient panels, and lower than average prescribing of the focal drug. Counterfactual estimates of the equilibrium response to a payment ban suggest that payments improve allocation by offsetting the distortion of high prices for on-patent drugs. We explore sensitivity of welfare estimates from our model, varying to the extent to which payments and the interactions that accompany them improve vs. distort prescribing. Total surplus typically increases with payments, but most of the gain accrues to manufacturers. Consumers only gain from payments if they mostly improve prescribing.

Published Papers

"The Elasticity of Science"

American Economic Journal: Applied Economics (Forthcoming)

Download final working paper version [Last revised: August 2019]

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 final working paper version [Last revised: January 2019]

View published version

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.

Other Writing

"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).

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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.