Economic Analysis of Risk and Uncertainty Induced by Health Shocks: A Review and Extension

R&D and market size: Who benefits from orphan drug legislation?

Since the early 80s, incentives have been introduced to stimulate R&D for rare diseases. We develop a theoretical model to study the impact of push and pull incentives on the intensive and extensive margin of optimal R&D investments. The model describes the mechanisms by which the type of incentives provided may favor R&D for orphan diseases with comparatively high prevalence. In our empirical analysis, we merge data on orphan drug designations by the Food and Drug Administration with Orphanet data on disease characteristics. In line with the theoretical results, we find evidence supporting the idea that the incentives adopted may have contributed substantially to widening the gap between more and less rare diseases classified as orphan. Our theoretical and empirical findings together suggest that, if providing some therapeutic option to patients with very rare diseases is a priority, a revision of the current system of incentives should be considered.

Macro-level efficiency of health expenditure: Estimates for 15 major economies

The coronavirus disease 2019 (COVID-19) pandemic highlights the importance of strong and resilient health systems. Yet how much a society should spend on healthcare is difficult to determine because additional health expenditures imply lower expenditures on other types of consumption. Furthermore, the welfare-maximizing ("efficient") aggregate amount and composition of health expenditures depend on efficiency concepts at three levels that often get blurred in the debate. While the understanding of efficiency is good at the micro- and meso-levels-that is, relating to minimal spending for a given bundle of treatments and to the optimal mix of different treatments, respectively-this understanding rarely links to the efficiency of aggregate health expenditure at the macroeconomic level. While micro- and meso-efficiency are necessary for macro-efficiency, they are not sufficient. We propose a novel framework of a macro-efficiency score to assess welfare-maximizing aggregate health expenditure. This allows us to assess the extent to which selected major economies underspend or overspend on health relative to their gross domestic products per capita. We find that all economies under consideration underspend on healthcare with the exception of the United States. Underspending is particularly severe in China, India, and the Russian Federation. Our study emphasizes that the major and urgent issue in many countries is underspending on health at the macroeconomic level, rather than containing costs at the microeconomic level.