Price Controls for Medical Innovations in a Life Cycle Perspective

Abstract

We study the market for new medical technologies from a life cycle perspective, incorporating the fact that healthcare utilization is biased towards old age. Contrary to conventional wisdom, we find that price controls on medical innovations can expand investment in medical R&D and results in Pareto superior social outcomes, a consequence of the price controls' ability to increase saving. Importantly, this finding occurs only when the price cap regime is extensive: selective regulation on few technologies - such as pharmaceuticals alone - have the conventional negative effect on innovation.