Working Paper

Medicare and the Rise of American Medical Patenting: The Economics of User-Driven Innovation

Jeffrey P. Clemens, Morten Olsen
CESifo, Munich, 2021

CESifo Working Paper No. 9008

Innovation is part idea generation and part development. We build a model of “innovating-by-doing,” whereby ideas come to practitioners. Successful innovation requires that practitioners’ ideas be developed through costly effort. Our model nests existing theories of laboratory research and learning-by-doing. Empirically, we analyze the effect of the U.S. Medicare program on medical equipment innovation. Our model’s structure allows us to infer the Medicare program’s aggregate effects. We estimate that Medicare’s introduction led to a 20 to 30 percent increase in medical equipment patenting across the United States, of which roughly half is due to the innovating-by-doing channel.

CESifo Category
Public Finance
Fiscal Policy, Macroeconomics and Growth
Keywords: innovation and invention, medical innovation, health care, health insurance
JEL Classification: I130, O380, O310, H510