Nber Working Paper Series Induced Innovation and Social Inequality: Evidence from Infant Medical Care

We develop a model of induced innovation where research effort is a function of the death rate, and thus the potential to reduce deaths in the population. We also consider potential social consequences that arise from this form of induced innovation based on differences in disease prevalence across population subgroups (i.e. race). Our model yields three empirical predictions. First, initial death rates and subsequent research effort should be positively correlated. Second, research effort should be associated with more rapid mortality declines. Third, as a byproduct of targeting the most common conditions in the population as a whole, induced innovation leads to growth in mortality disparities between minority and majority groups. Using information on infant deaths in the U.S. between 1983 and 1998, we find support for all three empirical predictions. We estimate that induced innovation predicts about 20 percent of declines in infant mortality over this period. At the same time, innovation that occurred in response to the most common causes of death favored the majority racial group in the U.S., whites. We estimate that induced innovation contributed about one third of the rise in the black-white infant mortality ratio during our period of study. David M. Cutler Department of Economics Harvard University 1875 Cambridge Street Cambridge, MA 02138 and NBER [email protected] Ellen Meara Department of Health Care Policy Harvard Medical School 180 Longwood Avenue Boston, MA 02115-5899 and NBER [email protected] Seth Richards Department of Economics University of Pennsylvania 3718 Locust Walk Philadelphia, PA 19104 [email protected]