When Is Prevention More Profitable than Cure? The Impact of Time-Varying Consumer Heterogeneity / Michael Kremer, Christopher M. Snyder.

Format:

Book

Author/Creator:

Kremer, Michael.

Contributor:

National Bureau of Economic Research.

Snyder, Christopher M.

Series:

Working Paper Series (National Bureau of Economic Research) no. w18862.

NBER working paper series no. w18862

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2013.

Summary:

We argue that in pharmaceutical markets, variation in the arrival time of consumer heterogeneity creates differences between a producer's ability to extract consumer surplus with preventives and treatments, potentially distorting R&D decisions. If consumers vary only in disease risk, revenue from treatments--sold after the disease is contracted, when disease risk is no longer a source of private information--always exceeds revenue from preventives. The revenue ratio can be arbitrarily high for sufficiently skewed distributions of disease risk. Under some circumstances, heterogeneity in harm from a disease, learned after a disease is contracted, can lead revenue from a treatment to exceed revenue from a preventative. Calibrations suggest that skewness in the U.S. distribution of HIV risk would lead firms to earn only half the revenue from a vaccine as from a drug. Empirical tests are consistent with the predictions of the model that vaccines are less likely to be developed for diseases with substantial disease-risk heterogeneity.

Notes:

Print version record

March 2013.