Inferring the value of medical research to the UK

Abstract

The aim of this paper is to estimate the return to the UK from health sector R&D drawing on the value of life methodology and the work by Murphy and Topel (2003). While acknowledging the caveats arising in making such calculations, not least the lack of consideration given to spillover effects from R&D undertaken elsewhere, this method is useful in at least attempting to initiate a quantification of the returns to medical R&D. Using life cycle consumption information, value of life estimates for the UK and changes in survival probabilities, the value of improved longevity in the UK over the years 1970-2000 is estimated at approximately £2.84 trillion, or £2.58 trillion after netting out health care expenditure. This is approximately double the current yearly GDP of the UK. The estimated gains are greatest for the period 1980- 1990. Given that the UK spends less than 0.5% of its GDP per annum (approximating £0.2 trillion over the 30-year period) on medical R&D, while clearly not all the gains in longevity can be attributed solely to medical R&D, the inference is that the returns to such investments are substantial. While such gains might be considered an upper estimate, given that the approach attributes all gains in life expectancy as a return to medical R&D over the period, gains in morbidity attributable to improved health delivery arising from medical R&D are not included in the estimate thus imparting a downward bias on the estimates as well as highlighting an obvious extension to this research