Demand Shocks, Procurement Policies, and the Nature of Medical Innovation: Evidence from Wartime Prosthetic Device Patents

(with Jeffrey Clemens). Forthcoming at the Review of Economics and Statistics

Selected for presentation at the 2020 NBER Summer Institute Public Economics  workshop

Media Coverage: VoxEU, The Conversation, Marginal Revolution

 Abstract: We analyze wartime prosthetic device patents to investigate how procurement policy affects the cost, quality, and quantity of medical innovation.  Analyzing whether inventions emphasize cost and/or quality requires generating new data.  We do this by first hand-coding the economic traits emphasized in 1,200 patent documents.  We then train a machine learning algorithm and apply the trained models to a century's worth of medical and mechanical patents that form our analysis sample.  In our analysis of these new data, we find that the relatively stingy, fixed-price contracts of the Civil War era led inventors to focus broadly on reducing costs, while the less cost-conscious procurement contracts of World War I did not.  We provide a conceptual framework that highlights the economic forces that drive this key finding. We also find that inventors emphasized dimensions of product quality (e.g., a prosthetic's appearance or comfort) that aligned with differences in buyers' preferences across wars.   Finally, we find that the Civil War and World War I procurement shocks led to substantial increases in the quantity of prosthetic device patenting relative to patenting in other medical and mechanical technology classes.  We conclude that procurement environments can significantly shape the scientific problems with which inventors engage, including the choice to innovate on quality or cost.

(first author with Aaron Boussina, Supreeth Shashikumar, Gabriel Wardi, Christopher Longhurst, Shamim Nemati)

Journal of Medical Internet Research, 2023, 25(e43486)

Research Question: Are there ways to embed economics into AI models used in health care settings? Our research takes a cost-benefit approach to optimize the use of an AI algorithm that alerts healthcare providers to sepsis cases within a specific diagnostic group, such as heart disease. Our simulations show potential cost savings of $4.6 billion and higher accuracy using our implementation.

Working Papers

 Abstract: How does FDA regulation affect innovation and market concentration? I examine this question by exploiting FDA deregulation events that affected certain medical device types but not others. I collect comprehensive data on medical device innovation, device safety, firm entry, prices, and regulatory changes and enhance these data using text analysis methods. My analysis of these data reveals three key findings. First, deregulation events significantly increased the quantity and quality of new technologies in affected medical device types relative to controls. These increases are particularly strong among small and inexperienced firms. Second, these events increased firm entry and reduced prices for medical procedures that utilize affected medical device types. Finally, rates of serious injuries and deaths attributable to defective devices did not significantly increase following these events. Interestingly, deregulating certain device types was associated with reduced adverse event rates, possibly due to firms increasing their emphasis on product safety in response to increased litigation risk.

Works in Progress

The Dynamic Effects of Health Care Price Reform

(with Yunan Ji)

Abstract: We examine how government price reforms affect innovation, market structure, and product quality in the health care sector. We exploit a Medicare payment reform that lowered spending on some categories of durable medical equipment (DME) by 66%, while leaving others unaffected. We find the reform led companies to file 29% fewer patents and introduce 22% fewer new models in affected DME categories relative to those unaffected. Additionally, patents filed after the price reform increasingly focused on ``process'' rather than ``product'' innovation, reflecting demand for cost-efficient DME. Furthermore, the market structure changed, with 25% fewer manufacturers entering affected markets, accompanied by a 65% increase in outsourced production to foreign companies. The shift towards cost-cutting, seen in patenting and supply chains, was associated with higher device repair rates among Medicare beneficiaries and reported adverse events within affected DME. While the price reform generated substantial savings, we estimate that the value of lost innovation may be twice as high. Our findings highlight the importance of considering dynamic consequences when designing policy reforms.

The Unintended Effects of Social Media Nudges on SNAP Take-Up

Abstract: The incomplete take-up of US social safety net programs is an enduring puzzle. I test whether nudges delivered on Facebook increase the take-up of the Supplemental Nutritional Assistance Program using a field experiment in California with government and non-profit partners. Over 16,000 SNAP-eligible non-participants were randomly assigned to a control group or to receive ads in their news feeds that either provided information about benefit amounts, emphasized a low-cost, streamlined application process, or de-stigmatized participation. The experiment also used a separate Spanish speaker arm with Spanish-translated text. I find that nudges did not increase take-up. Surprisingly, outreach decreased take-up and increased withdrawals among Spanish speakers, an effect plausibly driven by stigma and confusion.

Other Publications