Heterogeneous Returns to Medical Innovations

This paper sets up a quasi-experiment to estimate both total and heterogeneous impacts of medical innovations on the individual’s economic outcomes for a comprehensive set of around 90 health conditions. The rich administrative panel data for Sweden covering more than 1 million individuals combined with disease-specific data on new molecular entities and patents granted in healthcare have allowed me to emulate such an experiment. I find that an increase in medical innovations by one standard deviation raises disposable family income by 14.8% [95% CI: 14.4%; 15.1%]. Regarding the sources of income response, medical innovations strongly influence not only own disposable and labour income and sickness and unemployment payments but also a spouse’s income. The effects of medical innovations are especially strong for cancer and circulatory diseases, are moderate for mental and nervous, infectious and respiratory diseases, and are absent or appear as losses for other health shocks. Results also suggest decreasing returns – yet far from reaching zeros – rather than constant returns to scale.