Abstract
This paper examines trends in the aggregate productivity of the pharmaceutical sector over the past three decades. We incorporate Ricardo’s insight about demand-driven productivity in settings of variable scarce resources, and estimate the industry’s responsiveness to changes in demand over this timeframe using therapeutic class-specific data. In contrast to many analyses, our empirical estimates indicate that the industry has “met demand” with remarkable consistency since the late-1980s. The growth in total R&D spending, and therefore R&D costs per new drug, appear to have been profitable and productive investments. While we identify a significant increase in the industry’s fixed costs - the intercept of the production function - we find no decline in the marginal productivity of industry investments that might suggest significant supply-side frictions. While we cannot diagnose in detail why average, but not marginal, productivity declined, the data suggests that firms have finally begun to compete down returns from the supranormal levels of decades past.Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.