@article{b40f73f526224260a42fdcab90838828,
title = "R&D competition and the direction of innovation",
abstract = "We propose a model to show that when innovation in a given field becomes more lucrative, its direction can be distorted even though its rate rises. Higher payoffs attract innovators, making the R&D supply side more competitive. This competition endogenously shifts effort toward less promising but quicker-to-invent projects. We empirically quantify the magnitude of this distortion, in the context of pharmaceutical innovation during the Covid-19 pandemic. In the social planner solution, 74 percent more firms would have worked on vaccines and 17 percent more on novel compounds. Policy remedies include advance purchase commitments based on ex-ante value, targeted research subsidies, and antitrust exemptions for joint research ventures.",
keywords = "Direction of innovation, Innovation, Market inefficiency, Pharmaceutical innovation",
author = "Bryan, {Kevin A.} and Jorge Lemus and Guillermo Marshall",
note = "We thank the editor, Mitsuru Igami, two anonymous referees, participants at the NBER Economics of AI conference, ASSA 2022 Virtual Annual Meeting, as well as seminar participants at Universidad Adolfo Iba{\~n}ez, Universidad de Chile, University of Arizona, University of Michigan, University of New Hampshire, and University of Pennsylvania (Wharton) for helpful comments. Guillermo Marshall is supported in part by funding from the Social Sciences and Humanities Research Council (Canada). A prior version of this article circulated as “Crisis and the Direction of Innovation”. We thank the editor, Mitsuru Igami, two anonymous referees, participants at the NBER Economics of AI conference, ASSA 2022 Virtual Annual Meeting, as well as seminar participants at Universidad Adolfo Iba?ez, Universidad de Chile, University of Arizona, University of Michigan, University of New Hampshire, and University of Pennsylvania (Wharton) for helpful comments. Guillermo Marshall is supported in part by funding from the Social Sciences and Humanities Research Council (Canada). A prior version of this article circulated as ?Crisis and the Direction of Innovation?.",
year = "2022",
month = may,
doi = "10.1016/j.ijindorg.2022.102841",
language = "English (US)",
volume = "82",
journal = "International Journal of Industrial Organization",
issn = "0167-7187",
publisher = "Elsevier Inc.",
}