Is Medicine an Ivory Tower? Induced Innovation, Technological Opportunity, and For-Profit vs. Non-Profit Innovation

This paper examines whether the composition of medical research responds to changes in disease incidence and research opportunities. The paper also provides new evidence on induced pharmaceutical innovation. In both cases we use the change in the demographic structure of the market (measured by age structure and obesity prevalence) to test the induced innovation hypothesis. Technological opportunity is calculated from estimates of structural productivity parameters. The extent of inventive activity is measured from the MEDLINE database on 16 million biomedical publications. We match these data with data on disease incidence. We show that medical research responds to changes in disease incidence and research opportunities. We also find that pharmaceutical innovation responds to aging- and obesity-induced changes in potential market size.