STATIC AND DYNAMIC EFFECTS OF HEALTH POLICY:EVIDENCE FROM THE VACCINE INDUSTRY

STATIC AND DYNAMIC EFFECTS OF HEALTH POLICY:EVIDENCE FROM THE VACCINE INDUSTRY

Amy Finkelstein
January 2004

This paper compares the static and dynamic welfare effects of public policies. Public policies designed for the “static” purpose of increasing utilization of an existing technology may also affect incentives to develop new technologies. Recognition of such policies’ “dynamic” effects on the development of new technologies may substantially alter the analysis of optimal policy, as well as the welfare impact of any given policy.

Whether or not it is important to consider policy-induced innovation when evaluating the welfare effects of policies designed for “static” purposes depends, first on foremost, on whether such policies have a substantial effect on innovation. This key unknown parameter of the investment response is the main focus of the empirical analysis in the paper.

I look within the medical sector, where rapid technological progress has been a defining feature of the industry over the last century. Technological progress has been a key contributor to the dramatic health improvements of the 20th century. It is also widely viewed as the driving force behind the rapid growth in the real cost of medical care [Newhouse 1992]. Yet we know remarkably little about the determinants of the developments of these new technologies. Perhaps relatedly, almost all economic analysis of health policy has focused on its static effects on utilization of existing medical technologies, and ignored its dynamic effects on the development of new medical technologies. (본문 중에서)