The Elasticity of Pharmaceutical Innovation

That is the title of a new USC white paper by Darren Filson, Karen Van Nuys, Darius Lakdawalla and Dana Goldman with the subtitle “How Much Does Revenue Drive New Drug Development?” What is the elasticity of innovation? It measures the percentage change in innovation—using the flow of new drugs approvals, or Phase 1, 2,…

More evidence that there are diminishing marginal returns to quality of life gains

Quality-adjusted life years (QALYs) are commonly used to evaluate the impact of new medical technologies on patient mortality and morbidity. However, use of QALYs Many authors have discussed the fact that standard assumptions result in utility functions that are unrealistically linear and separable, overlooking the diminishing marginal utility a fundamental property of utility functions in…

Public vs. Private Sector R&D Investments

In 2011, National Institutes of Health (NIH)-funded discoveries contributed $69 billion to the nation’s gross domestic product (GDP) and supported seven million jobs. In 2020 alone, the US biomedical and pharmaceutical private sector generated more than $1.4 trillion in economic output. From Reece et al. (Health Affairs 2025) In addition to economic output, private-sector R&D…

Life sciences companies falling behind?

That is what an analysis from PwC finds, at least with respect to stock market returns. Our PwC equal-weight index of 50 pharma companies analyzes the sector’s total shareholder returns performance relative to the S&P 500 Equal Weighted Index. From 2018 through November 2024, the PwC pharma index returned 7.6% to shareholders, compared with more…

When should we privatize government industries?

Tyler Cowen is an economist from George Washington University and a libertarian. Thus, you would expect his answer to this question would be ‘always’. In a recent Bloomberg article discussing whether to privatize government assets (e.g., USPS), he makes a more nuanced argument. First, for consumer goods, it is nearly always good to privatize. Cowen…