Inefficiencies in the sale of ideas: theory and empirics

The sale of ideas (e.g. through licensing) facilitates vertical specialization and the division of labor between research and development. This specialization can improve the overall efficiency of the innovative process. However, these gains depend on the timing of the sale: the buyer of an idea should assume development at the stage at which he has an efficiency advantage. We show that in an environment with asymmetric information about the value of the idea and where this asymmetry decreases as the product is developed, the seller of the idea may delay the sale to the more efficient firm, thus incurring higher development costs. We obtain a condition for the equilibrium timing of the sale and examine how factors such as the intensity of competition between potential buyers influence it. Empirical analysis of licensing contracts signed between firms in the pharmaceutical industry supports our theoretical predictions.Innovation, Licensing, Market structure, Bargaining, Pharmaceuticals, Biotechnology.

The Effects of Pharmaceutical Innovation on Cancer Mortality Rates

Cancer is a leading cause of death in developed countries, and cancer treatments are the top category of pharmaceutical spending in the United States and Europe. This paper assesses whether novel cancer therapies are associated with a reduction in mortality. Using panel data from 11 developed countries, we study the relationship between mortality attributed to a specific cancer site and the availability of pharmaceutical treatments. The cross-country and cross-site variation over time allows us to isolate the decline in mortality attributable to new drugs from that due to changes in lifestyle and environmental factors. We correct for the endogeneity of mortality and the availability of new treatments using instrumental variables. On average, our results show a decline in mortality of 8-9% is associated with the availability of one new treatment for a cancer site. The gains vary across countries and cancer sites. Based on spending from 2000-2011, costs per statistical life saved ranged from $11-12K for bladder and liver cancers to over$150K for cervical, melanoma and stomach cancers. Across countries, Switzerland had the largest spending per statistical life at approximately $66K, while the UK had the lowest with$19K