Social Value and the Speed of Innovation

Abstract

Murphy and Topel (2006, henceforth MT) develop methods for valuing health improvements based on individuals’ willingness to pay. Our results indicate that past health improvements have been enormously valuable. We estimate that gains in life expectancy over the twentieth century were worth more than $1.2 million per person to the current US population, and that rising longevity added about $3.2 trillion per year to national wealth between 1970 and 2000, as mortality rates among older adults fell sharply. Looking ahead, we estimate that even modest progress against major lifethreatening diseases would be extremely valuable. For example, the two most prominent causes of disease-related mortality in the United States are cardiovascular diseases (CVD) and cancer. We find that a permanent 10 percent reduction in mortality rates from CVD would be worth about $5.7 trillion to current and future Americans, while similar progress against cancer would be worth $4.7 trillion. A 10 percent reduction in overall mortality would be worth about $18 trillion. If past progress is an indication, there is little doubt that these or greater gains will eventually be realized. The questions are when and at what cost? In comparison to these prospective benefits of health progress, expenditures on basic and applied health research in the United States are modest. Public support for basic biomedical research—mainly through the National Institutes of Health (NIH) and associated grants to research universities—totals about $28 billion annually. Adding expenditures on health research and development (R&D) by private institutions and by pharmaceutical and medical products companies brings the total for basic and applied health research to about $60 billion Social Value and the Speed of Innovation