The Economics of Health Innovation

The latest medical innovations can dramatically affect the decisions people make.
The Economics of Health Innovation

AS MEDICAL RESEARCHERS develop effective treatments for once-fatal diseases, what happens when new treatments allow patients to live years longer than expected?

Many turn their lives around in dramatic fashion, according to a multidisciplinary team of scholars. The team includes Nicholas Papageorge of the department of economics at Johns Hopkins University in Baltimore, Maryland; Gwyn Pauley of the department of economics at the University of Wisconsin–Madison; Mardge Cohen, a physician at Rush University and Stroger Hospital in Chicago, Illinois; Tracey E. Wilson of the department of community health sciences at the SUNY Downstate Health Sciences University School of Public Health in Brooklyn, New York; and Barton H. Hamilton and Robert A. Pollak, both professors of economics at the Olin Business School at Washington University in St. Louis, Missouri.

The researchers analyzed data from the Women’s Intra-Agency HIV Study, an ongoing longitudinal study that began in 1994. They focused on asymptomatic women infected with the human immunodeficiency virus who had recently begun a new treatment called Highly Active Anti-Retroviral Therapy (HAART). HAART has reduced mortality rates among those infected with HIV by 80 percent.

Most women in the sample earned lower incomes and had less education than average U.S. women, and they were disproportionately affected by HIV. After HAART, the expectation of potentially living 30 years longer motivated these women to make significant changes to their lives—drug use decreased by 15 percent to 20 percent and incidents of domestic abuse dropped by 15 percent. These women “took this second chance and ran with it,” says Papageorge. The economic impact can be significant: In the U.S., medical costs associated with domestic violence alone are estimated to be US$5.8 billion.

New medical treatments are likely to dramatically affect the decisions people make, says Hamilton. “In economics, we don’t have too many situations where we can study such a big shock.”

Health, Human Capital and Domestic Violence” is forthcoming in the Journal of Human Resources.