Nber Working Paper Series Do Firms Underinvest in Long-term Research? Evidence from Cancer Clinical Trials

We investigate whether private research investments are distorted away from long-term projects. Our theoretical model highlights two potential sources of this distortion: short-termism and the fixed patent term. Our empirical context is cancer research, where clinical trials – and hence, project durations – are shorter for late-stage cancer treatments relative to early-stage treatments or cancer prevention. Using newly constructed data, we document several sources of evidence that together show private research investments are distorted away from long-term projects. The value of life-years at stake appears large. We analyze three potential policy responses: surrogate (non-mortality) clinicaltrial endpoints, targeted R&D subsidies, and patent design. Eric Budish University of Chicago Booth School of Business 5807 S. Woodlawn Avenue Chicago, IL 60637 eric.budish@chicagobooth.edu Benjamin N. Roin Massachusetts Institute of Technology broin@mit.edu Heidi Williams Department of Economics, E17-222 MIT 77 Massachusetts Avenue Cambridge MA 02139 and NBER heidiw@mit.edu