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How Does Medical Innovation Create Value? Health, Human Capital and the Labor Market
| Content Provider | Semantic Scholar |
|---|---|
| Author | Papageorge, Nicholas W. |
| Copyright Year | 2013 |
| Abstract | This paper develops a dynamic framework to value medical innovation that takes explicit account of the link between health, human capital and the labor market. Using a characteristics approach, I model medical innovation as increased efficacy or reduced side effects. The framework is applied to HIV treatments, including a 1996 medical breakthrough (HAART) that transformed HIV infection from a virtual death sentence into a manageable, chronic condition. The main findings are (1) For an HIV+ individual, HAART introduction was worth between $20,000 and $340,000, with higher values corresponding to younger agents or agents with greater work experience. (2) A counterfactual version of HAART without side effects is worth up to an additional $375,000. (3) When no treatment dominates others in terms of efficacy and side effects, agents optimally cycle among available options. In general, sicker agents choose effective treatments despite harsh side effects, but switch to less effective drugs with fewer side effects once their health improves. (4) Treatment cycling is partly determined by the labor market. If non-wage income declines, agents are compelled to work, increasing their frequency of switching to treatments with fewer side effects. More aggressive treatment cycling, in turn, diminishes average health and reduces survival probability. JEL Classification: I1 J2 ∗Special thanks go to my dissertation committee: Barton Hamilton, Tat Chan, Mariagiovanna Baccara, Sebastian Galiani, Juan Pantano and Robert Pollak. I gratefully acknowledge invaluable comments from: Melanie Blackwell, Janet Currie, Amy Finkelstein, Stephanie Heger, Karim Lakhani, Glenn MacDonald, Harry Paarsch, Carl Sanders and participants in the Work, Families and Public Policy Seminar and the 2011 North American Summer Meetings of the Econometric Society, both at Washington University in St. Louis, the Health and Human Capital Conference at the ZEW in Mannheim and the Roundtable on Engineering Entrepreneurship Research (REER) at Georgia Institute of Technology. All errors are my own. Department of Economics, Washington University in St. Louis. Email: papageorge@wustl.edu. |
| File Format | PDF HTM / HTML |
| DOI | 10.2139/ssrn.2231233 |
| Alternate Webpage(s) | https://editorialexpress.com/cgi-bin/conference/download.cgi?db_name=NASM2012&paper_id=487 |
| Alternate Webpage(s) | http://www.econ2.jhu.edu/People/Papageorge/papers/vmi_papageorge_5-2-2012.pdf |
| Language | English |
| Access Restriction | Open |
| Content Type | Text |
| Resource Type | Article |
