What is it about?
The purpose of this paper is to use a dynamic model of optimal patent design and, in the presence of information externalities, to study the evolution of technological progress in the context of a pharmaceutical industry.
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Why is it important?
Pharmaceutical firms with an active drug discovery program behave strategically in their R&D and in the product markets. It is shown that a firm holding an earlier-expiring patent only chooses to proceed with R&D activates when the patent it holds expires if the expected discounted payoff net of R&D costs yielded by this action is positive. The expected discounted payoff net of R&D costs obtained by this firm is then decreasing in R&D costs, increasing in the cumulative quality discovered in the past R&D activates, and decreasing in the number of past R&D activities, etc.
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This page is a summary of: The search for new drugs: a theory of R&D in the pharmaceutical industry, Journal of Economic Studies, October 2017, Emerald,
DOI: 10.1108/jes-01-2016-0002.
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