NIH funding and the pursuit of edge science.

The National Institutes of Health (NIH) plays a critical role in funding scientific endeavors in biomedicine. Funding innovative science is an essential element of the NIH's mission, but many have questioned the NIH's ability to fulfill this aim. Based on an analysis of a comprehensive corpus of published biomedical research articles, we measure whether the NIH succeeds in funding work with novel ideas, which we term edge science. We find that edge science is more often NIH funded than less novel science, but with a delay. Papers that build on very recent ideas are NIH funded less often than are papers that build on ideas that have had a chance to mature for at least 7 y. We have three further findings. First, the tendency to fund edge science is mostly limited to basic science. Papers that build on novel clinical ideas are not more often NIH funded than are papers that build on well-established clinical knowledge. Second, novel papers tend to be NIH funded more often because there are more NIH-funded papers in innovative areas of investigation, rather than because the NIH funds innovative papers within research areas. Third, the NIH's tendency to have funded papers that build on the most recent advances has declined over time. In this regard, NIH funding has become more conservative despite initiatives to increase funding for innovative projects. Given our focus on published papers, the results reflect both the funding preferences of the NIH and the composition of the applications it receives.

The other ex ante moral hazard in health.

It is well-known that pooled insurance coverage can induce people to make inefficiently low investments in self-protective activities. We identify another ex ante moral hazard that runs in the opposite direction. Lower levels of self-protection and the associated chronic conditions and behavioral patterns such as obesity, smoking, and malnutrition increase the incidence of many diseases and consumption of treatments to those diseases. This increases the reward for innovation and thus benefits the innovator. It also increases treatment innovation which benefits all consumers. As individuals do not take these positive externalities into account, their investments in self-protection are inefficiently high. We quantify the lower bound of this externality for obesity. The lower bound is independent of how much additional innovation is generated. The results show that the externality we identify offsets the negative Medicare-induced insurance externality of obesity. The Medicare-induced obesity subsidy is thus not a sufficient rationale for "soda taxes", "fat taxes" or other penalties on obesity. The quantitative finding also implies that the other ex ante moral hazard that we identify can be as important as the ex ante moral hazard that has been a central concept in health economics for decades.