Friday, 23 May 2014

Returns to medical research

We have just produced a report on the public sector spillovers from science spending and find a 20% rate of return on public sector science spend. 

This medical paper, What’s It Worth report, very widely quoted finds

We estimated that the GDP gains that result from
increased public/charitable medical research deliver
an additional rate of return in the range 20–67% (with a
best estimate of 30%). (Page 7)

How does all this relate?

Page 5 explains this

Economic returns to medical research comprise two,
additive, elements:
• health gains net of the health care costs of delivering
• GDP gains, that is to say the UK national income
that results directly and indirectly from the medical
research and the further activity stimulated by it.

How do they get the first? By counting how much life has been extended due to a drug, valuing that life over time and figuring out what the drug cost to develop and whether it was done in the UK or not.

How do they get the second?  P.36 sets out two methods

1 two-stage approach:
a) estimating the private R&D stimulated by public
b) estimating the social rate of return to the private
R&D so stimulated
2 one-stage approach: a direct estimate of the social
rate of return generated, by whatever transmission
mechanisms, by public medical research

The one-stage method uses estiamtes of the social rate of return that are derived from agriculture. See their page 36

But because  empirical estimates to enable the one-stage approach
to be taken come only from non-medical sectors (mainly
agriculture), we considered it desirable to provide a
check by undertaking the two-stage estimates as well,
as described in the following paragraphs.
The one-stage method uses data from the US to get 1a above, that is, the crowding in effect of public R&D and then uses an average of the public rates of return of private R&D , see page 38, based mainly on US manufacturing studies.