The massive funding in COVID-19 research and the “elasticity” of science
The case for investing in research to prevent pandemic outbreaks may have been strong. However, now that that pandemic is upon us, and given the many demands on the public purse, is it wise to invest large amounts in COVID-19 research? Indeed, public funders are multiplying initiatives to fund SARS-CoV-2 research. Strikingly, the NIH has received 1.8 billion dollars to spend in COVID-19 research. On a smaller scale, the EU, Canada, France, Switzerland, Norway, Denmark, Portugal, South Africa and other countries – all have launched new initiatives and grant calls to support COVID-19 research. China is now running in excess of 500 clinical trials related to the coronavirus. And more research funding is probably forthcoming.
The SARS-CoV-2 has emerged as an unmet medical need of massive proportions. The human costs in terms of lives lost but also of anxiety and isolation for many are large but difficult to quantify. However, some figures on the economic costs in the U.S. alone point to the magnitude of the problem. Since the beginning of 2020, the Dow Jones has lost close to 30% of its market capitalization – around 2.3 trillion dollars. The latest relief package for the U.S. economy is worth 2 trillion dollars. Either of these figures are considerably larger than worldwide yearly sales for all pharmaceutical products which stand around 1.2 trillion USD. The world is desperate for new pharmaceutical products that could prevent, treat, or at least help detect SARS-CoV-2.
How many scientists, medical researchers and pharmaceutical companies should switch their efforts towards SARS-CoV-2 prevention, treatment or mitigation? In the short run, only a subset of researchers have the right human capital to advance the knowledge frontier in any specific area. While more research on the elasticity of science with respect to targeted funding is needed, work by Kyle Myers (forthcoming) suggests that switching costs of science are large[1]. Human capital is not the only barrier: good research ideas may also be scarce. In a world of scarce ideas – a theme much emphasized in the work of the late Suzanne Scotchmer – increasing funding invariably leads to diminishing returns. The most promising ideas are explored first and the productivity of additional researchers is lower since they must work on less promising ideas. More generally, ideas are getting harder to find (Bloom et al., 2020). Finally, the unmet medical needs of yesterday have not gone away and pharmaceutical innovation for all sorts of other diseases is still needed.
The previous considerations suggest that reallocating vast amounts of funding to SARS-CoV-2 research could be wasteful. However, they should also be taken with caution. The scarcity of ideas may be a factor, but the current virus has not been the focus of research for a long time. We may be far from diminishing returns kicking in. Whether ideas are scarce is itself disputed. Paul Romer in particular has argued for constant returns to scale in the production of knowledge. As far as the human capital constraint is concerned, this may be mitigated by the fact that a wide range of innovations could be useful to fight COVID-19, from vaccines, drugs and medical equipment to innovation in testing. Immunologists may work on vaccine development while microbiologists focus on testing and engineers put their efforts on new protective equipment and ventilators. Moreover, research by Lakhani and Jeppesen (2007) suggests that problems are often solved by outsiders to the scientific community focusing on a problem.
While the optimal level of SARS-CoV-2 public research support is unclear, we believe that in the long term there is a strong case for considerably more support than is presently the case. The discrepancy between the needs and the current level support is stupendous. The NIH COVID-19 budget may sound large but is only 4% of the total NIH budget and one tenth of one percent of the U.S. relief package. As the pandemic paralyzes the economy of most advanced countries, outside China SARS-CoV-2 clinical trials are less than 1% of the total number of clinical trials currently underway[2]. It is likely that we will not see investment in research to fight COVID resulting in major progress in the short run. However, given the stakes involved, even minor innovations could be useful and the upside of a breakthrough is massive. It is also possible that innovation in the medium run could be incredibly valuable. In the longer run, policy should aim not just at increasing spending but at increasing the total quantity of inputs that go into the research, and in particular human capital at the right level of skills and knowledge.
To follow what was has just been said about the short term and long term effects of massive funding reallocation in science, a general policy principle could be the following: while “overreaction” is understandable in a context of crisis and also useful in terms of positive signals sent to a shocked society, significant resource re-allocation in science needs to be done in a cautious manner (Schankerman, 2009). The management of public science requires steady and balanced research budgets: research is an experimental, cumulative and interactive process, and it is very costly to adjust the level of effort over time. These large adjustment costs make multi-year funding horizons crucial. Also, there are strong complementarities among fields, and these are hard to predict in advance. For both reasons, it is important to preserve a large measure of balance across fields, resisting any faddish focus on single scientific areas. This does not provide policy makers with detailed investment guidance – but it provides a useful caution and a longer range perspective than they otherwise take.
Dominique Foray (EPFL and SWR), Patrick Gaulé (University of Bath), Gaétan de Rassenfosse (EPFL) and Charles Ayoubi (EPFL)
[1] The term ‘elasticity of science’ designates the extent to which scientific production reacts to a change in funding.
[2] The 1-percent figure is based on authors’calculations based on clinicaltrials.gov data – accessed 21 March 2020
This short contribution is part of an extensive paper – COVID-19: Insights from Innovation Economists – which has been written by a collective of scholars primarily associated to the College of Management of Technology at EPFL, under the supervision of Dominique Foray and Gaétan de Rassenfosse (both are Professors at EPFL). The full paper is available at – https://ssrn.com/abstract=3575824
References:
Bloom, N, Jones, C., Van Reenen, J. and Webb, M., 2020, “Are ideas getting harder to find?”, American Economic Review, vol.110, 4, April.
Lakhani, K and Jeppesen B., 2007, “Getting unusual suspects to solve R&D puzzles”, Harvard Business Review, May.
Schankerman, M., 2009, “Comments”, in D.Foray (ed.), The new economics of technology policy, Edward Elgar.