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Research and Development in the Pharmaceutical Industry
This CBO paper is an interesting addition to the existing literature on pharmaceutical industry investment and productivity. However, it also points out that the U.S.'s heavy reliance on third–party health insurance may encourage consumers to overspend on some kinds of health care, including pharmaceuticals.
High prices on new drugs encourage continued innovation. But because health insurance (private plans as well as Medicaid and Medicare) keeps consumers from bearing the full weight of those prices, the demand for new drugs is higher than it otherwise would be at any given price.
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