Prof. Matthew Higgins, Ph.D.

Articles in Refereed Journals

Aggarwal, Mayank; Chakrabarti, Anindya S.; Chatterjee, Chirantan; Higgins, Matthew John (2023). Research and Market Structure: Evidence from an Antibiotic-Resistant Pathogenic Outbreak, Research Policy, 52 (1). DOI

• We provide causal evidence that upstream research shocks impact unconnected downstream product markets. Focusing on the Indian pharmaceutical market, we use a natural experiment involving a publication that identified a pathogenic outbreak involving a carbapenem antibiotic resistant superbug. Consistent with theory, we find that this upstream research shock caused multinational firms selling carbapenem antibiotics in India to reduce their downstream market exposure. Rational antibiotic stewardship implies that we should observe a similar response by domestic Indian firms. Surprisingly, we observe the opposite, domestic Indian firms filled the void in the market left by multinational firms. We confirm this aggregate finding with prescription level data; Indian physicians prescribed fewer focal multinational products relative to domestic firm products. Results are robust to alternate control groups and placebo testing. Implications for antibiotic resistance, global health policy and innovation policy are discussed.
• Also published as: NBER Working Paper 28840

Branstetter, Lee; Chatterjee, Chirantan; Higgins, Matthew John (2022). Generic Competition and the Incentives for Early-Stage Pharmaceutical Innovation, Research Policy, 51 (10). DOI

• What impact has rising generic competition had on the nature and direction of pharmaceutical innovation? We find broad-based, strong evidence that pharmaceutical companies have diverted their new drug development efforts away from therapeutic markets already well-served by generic drugs. We also find that increasing generic competition induces firms to shift their R&D activity toward more biologic-based products and away from chemical-based products. We conclude by discussing potential implications of our results for long-run innovation policy.
• Also published as: NBER Working Paper 20532

Higgins, Matthew John; Yan, Xin; Chatterjee, Chirantan (2021). Unpacking the Effects of Adverse Regulatory Events: Evidence from Pharmaceutical Relabeling, Research Policy, 50 (1). DOI

• We provide causal evidence that regulation induced product shocks significantly impact aggregate demand and firm performance in pharmaceutical markets. Event study results suggest an average loss between $569 million and $882 million. Affected products lose, on average, $186 million over their remaining effective patent life. This leaves a loss of between $383 million and $696 million attributable to declines in future innovation. Our findings complement research that shows drugs receiving expedited review are more likely to suffer from regulation induced product shocks. Thus, it appears we may be trading off quicker access to drugs today for less innovation tomorrow. Results remain robust to variation across types of relabeling, market sizes, and levels of competition.
• Also published as: NBER Working Paper 24957

Higgins, Matthew John; Lacombe, Donald; Sell, Briana; Young, Andrew (2021). Evaluating the Effects of Small Business Administration Lending on Growth, Small Business Economics, 57 (1), 23-45. DOI

• Conventional wisdom suggests that small businesses are innovative engines of Schumpetarian growth. However, as small businesses, they are likely to face credit rationing in financial markets. If true, then policies that promote lending to small businesses may yield substantial economy-wide returns. We examine the relationship between Small Business Administration (SBA) lending and local economic growth using a spatial econometric framework and a sample of U.S. counties. We find evidence that a county’s SBA lending per capita is associated with direct negative effects on its income growth. We also find evidence of indirect negative effects on the growth rates of neighboring counties. Overall, a 10% increase in SBA loans per capita is associated with a cumulative decrease in income growth rates of about 0.02 to 0.03 percentage points.
• Also published in 2014 as NBER Working Paper No. 20543

Palermo, Vincenzo; Higgins, Matthew John; Ceccagnoli, Marco (2019). How Reliable Is the Market for Technology?, Review of Economics and Statistics, 101 (1), 107-120. DOI

• Research has focused on why and when firms access external technology markets. Less is known about the reliability of patents attached to licensed technologies during litigation. Unreliable patents expose a firm to loss of downstream revenues. We address this by constructing a data set of patent litigation in the pharmaceutical industry and exploit a change in patent law that exogenously increased the probability of litigation. We find that licensed patents are more likely to fall during litigation. This effect is isolated to firms with fewer intellectual property capabilities and less patenting experience, suggesting that benefits from external technology are not shared equally.
• Also published as: NBER Working Paper No. 21103

Ceccagnoli, Marco; Higgins, Matthew John; Kang, Hyunsung D. (2018). Corporate Venture Capital as a Real Option in the Market for Technology, Strategic Management Journal, 39, 1138-1146. DOI

• We apply real options (RO) theory to
  understand the role of corporate venture capital (CVC) investments and its relationship with internal R&D capabilities in
  supporting the acquisition of external technologies. We formulate hypotheses about key drivers of the option value of
  CVC and the decision to exercise the RO using a dyadic dataset of global pharmac eutical firms and their biotech partners.
  Our findings suggest that the option value of CVC is higher for investors with weaker scientific capabilities; engaging the
  markets for technology in distant technological fields; and, when their innovation pipeline is tilted toward the late-stage
  development process. Finally , the licensing of high-value technologies is the most likely form of option exercise when technological uncertainty is reduced post-CVC.
  Managerial Summary: Despite the fact that one of the main goals of corporate venture capital (CVC) investments in high-tech industries is to gain a window on fut ure tech-
  nologies, the relationship between CVC and other strategies used to acquire external technologies, such as licensing, has not been adequately explored. To address
  this gap, we formulat e hypotheses about key drivers of the decision to make CVC investments as a wait-and-see strat-
  egy in the markets for technology (MFT) using a longitudinal dataset of global pharmaceutical firms and their biotech partners. We find that investors' scientific capabilities, technological domains, and research pipelines impact
  investors' decisions to make CVC investments prior to other MFT transactions. In our research setting, investors typically acquire high-value technologies via licensing
  when technological uncertainty is reduced post-CVC.
• Also published as: NBER Working Paper 21424

Lurkin, Virginie; Garrow, Laurie A.; Higgins, Matthew John; Newman, Jeffrey P. (2017). Accounting for Price Endogeneity in Airline Itinerary Choice Models: An Application to Continental U.S. Markets, Transportation Research Part A: Policy and Practice, 100, 228-246. DOI

• Network planning models, which forecast the profitability of airline schedules, support many critical decisions, including equipment purchase decisions. Network planning models include an itinerary choice model that is used to allocate air total demand in a city pair to different itineraries. Multinomial logit (MNL) models are commonly used in practice and capture how individuals make trade-offs among different itinerary attributes; however, none that we are aware of account for price endogeneity. This study formulates an itinerary choice model that is consistent with those used by industry and corrects for price endogeneity using a control function that uses several types of instrumental variables. We estimate our model using a database of more than 10 million passenger trips provided by the Airlines Reporting Corporation. Results based on Continental U.S. markets for May 2013 departures show that models that fail to account for price endogeneity overestimate customers’ value of time and result in biased price estimates and incorrect pricing recommendations. The size and comprehensiveness of our database allows us to estimate highly refined departure time of day preference curves that account for distance, direction of travel, number of time zones traversed, departure day of week and itinerary type (outbound, inbound or one-way). These time of day preference curves can be used by airlines, researchers, and government organizations in the evaluation of different policies such as congestion pricing.

Further Publications, Press Articles, Interviews

Higgins, Matthew John (2020). Predictions on the Medical Device Economic Comeback. Podcast Interview with Rick Barnett (CEO, Rep-Lite).

• https://ms-my.facebook.com/replite1/videos/2619465284980800/

Discussion Papers

Feng, Josh; Higgins, Matthew John; Patel, Elena (2023). Pediatric Drug Adherence and Parental Attention: Evidence from Comprehensive Claims Data, NBER Working Paper, 30968. DOI

• We study how pediatric drug adherence responds to macroeconomic shocks, leveraging comprehensive U.S. claims data and the COVID-19 pandemic. For the youngest asthmatic children, adherence to prescriptions fell by 30 percent by the end of 2020, with smaller negative effects for older children. The effect is not driven by factors distinctive to COVID, including school closures and air quality. Rather, we find evidence consistent with parental attention playing a large quantitative role. Our findings speak to the role of non-monetary factors in determining an important pediatric health behavior and to the evolution of the pediatric health-parental income gradient.

Akari, P.; Chatterjee, C.; Higgins, Matthew John (2023). Don't Throw the Baby Out with the Bathwater: Firm Response to Downstream Product Shocks.

Agrawal, S.; Rathi, S.; Chatterjee, C.; Higgins, Matthew John (2023). Do Stronger IPR Incentivize Female Participation in Innovation?: Evidence from Chinese AI Patents.

Ceccagnoli, M.; Di Lorenzo, F.; Higgins, Matthew John; Palermo, V. (2023). Technology Licensing and Firm Performance: Can Innovation Strategy Mitigate Trade-Offs from Inward Looking Behavior?.

Branstetter, Lee; Chatterjee, Chirantan; Higgins, Matthew John (2022). Generic Competition and the Incentives for Early-Stage Pharmaceutical Innovation, NBER Working Paper, 20532.

• What impact has rising generic competition had on the nature and direction of pharmaceutical innovation? We find broad-based, strong evidence that pharmaceutical companies have diverted their new drug development efforts away from therapeutic markets already well-served by generic drugs. We also find that increasing generic competition induces firms to shift their R&D activity towards more biologic-based products and away from chemical-based products. We conclude by discussing potential implications of our results for long-run innovation policy.
• https://www.nber.org/papers/w20532
• Also published in: Research Policy Volume 51, Issue 10, December 2022, 104595

Byrski, Dennis; Gaessler, Fabian; Higgins, Matthew John (2021). Market Size and Research: Evidence from the Pharmaceutical Industry, Max Planck Institute for Innovation & Competition Research Paper, No. 21-16.

• Prior literature has established a link between changes in market size and pharmaceutical innovation; whether a link exists with scientific research remains an open question. If upstream research is not responsive to these changes, the kinds of scientific discoveries that flow into future drug development could be disconnected from downstream demand. We explore this question by exploiting the effects of quasi-experimental variation in market size introduced by Medicare Part D. We find no causal relationship between market size and biomedical research in the decade following the implementation of Medicare Part D. While many factors have been shown to motivate scientists to conduct research, this result suggests that changes in market size provide no such incentive. We do find, however, limited support for a response by corporate scientists conducting applied research. Implications for pharmaceutical innovation policy are discussed.
• Also published as NBER Working Paper No. 28858

Aggarwal, Mayank; Chakrabarti, Anindya S.; Chatterjee, Chirantan; Higgins, Matthew John (2021). Research and Market Structure: Evidence from an Antibiotic-Resistant Pathogenic Outbreak, NBER Working Paper, 28840. DOI

• Do upstream research shocks impact unconnected downstream product markets? We explore this question using a natural experiment involving a publication that identified a pathogenic outbreak in India involving a carbapenem antibiotic resistant superbug. Consistent with theory, we find that this upstream research shock caused multinational firms selling carbapenem antibiotics in India to reduce their downstream market exposure. Rational antibiotic stewardship implies that we should observe a similar response by domestic Indian firms. Surprisingly, we observe the opposite; domestic Indian firms filled the void in the market left by multinational firms. We confirm this aggregate finding with prescription level data, Indian physicians prescribed fewer focal multinational products relative to domestic firm products. Results are robust to alternate control groups and placebo testing. Implications for antibiotic resistance, global health policy and innovation policy are discussed.
• Also published in: Research Policy Volume 52, Issue 1, January 2023, 104633

Higgins, Matthew John; Kronlund, Mathias J.; Park, Ji Min; Pollet, Joshua (2020). The Role of Assets In Place: Loss of Market Exclusivity and Investment, NBER Working Paper, 27588. DOI

• We utilize a novel identification strategy to analyze the impact of assets in place on firms' decisions for future projects. We exploit the context in the pharmaceutical industry, where the loss of market exclusivity for a branded drug can be used to separate the impact of cash flows generated by a firm's current assets in place from the characteristics of its future investment opportunities. We first show that around the exclusivity losses in our sample of large drugs, the affected firms' profitability drop significantly. The timing of this profitability decrease was predetermined many years ago, and therefore, arguably independent of current investment opportunities. Nevertheless, we find that R&D spending drops by approximately 25% over two years following the loss of exclusivity. We also find that stock repurchases and cash balances decline significantly. Our findings do not support the predictions of traditional capital budgeting, but are more consistent with the pecking order theory. These results further point to a lack of long-term lifecycle management that could mitigate the effect of predictable negative shocks to cash flows.

Higgins, Matthew John; Yan, Xin; Chatterjee, Chirantan (2020). Unpacking the Effects of Adverse Regulatory Events: Evidence from Pharmaceutical Relabeling, NBER Working Paper, 24957. DOI

• We provide causal evidence that regulation induced product shocks significantly impact aggregate demand and firm performance in pharmaceutical markets. Event study results suggest an average loss between $569 million and $882 million. Affected products lose, on average, $186 million over their remaining effective patent life. This leaves a loss of between $383 million and $696 million attributable to declines in future innovation. Our findings complement research that shows drugs receiving expedited review are more likely to suffer from regulation induced product shocks. Thus, it appears we may be trading off quicker access to drugs today for less innovation tomorrow. Results remain robust to variation across types of relabeling, market sizes, and levels of competition.
• Also published in Research Policy, 50,1 (2021), 104126

Higgins, Matthew John; Kronlund, Mathias J.; Park, Ji Min; Pollet, Joshua (2020). The Role of Assets In Place: Loss of Market Exclusivity and Investment (NBER Working Paper, 27588 ). DOI

• We utilize a novel identification strategy to analyze the impact of assets in place on firms' decisions for future projects. We exploit the context in the pharmaceutical industry, where the loss of market exclusivity for a branded drug can be used to separate the impact of cash flows generated by a firm's current assets in place from the characteristics of its future investment opportunities. We first show that around the exclusivity losses in our sample of large drugs, the affected firms' profitability drop significantly. The timing of this profitability decrease was predetermined many years ago, and therefore, arguably independent of current investment opportunities. Nevertheless, we find that R&D spending drops by approximately 25% over two years following the loss of exclusivity. We also find that stock repurchases and cash balances decline significantly. Our findings do not support the predictions of traditional capital budgeting, but are more consistent with the pecking order theory. These results further point to a lack of long-term lifecycle management that could mitigate the effect of predictable negative shocks to cash flows.

Higgins, Matthew John; Yan, Xin; Chatterjee, Chirantan (2019). Market Effects of Adverse Regulatory Events: Evidence from Drug Relabeling, NBER Working Paper, No. 24957. DOI

Kim, Yujin; Chatterjee, Chirantan; Higgins, Matthew John (2019). Moving Beyond the Valley of Death: Regulation and Venture Capital Investments in Early-Stage Biopharmaceutical Firms, NBER Working Paper, No. 25202. DOI

• Can regulation reduce risks associated with investing in early-stage firms? Using the passage of the European Orphan Drug Act (EU-ODA), we examine this question in the biopharmaceutical industry. We provide causal evidence that venture capitalists (VCs) are more likely to invest in early-stage firms operating in sub-fields disproportionately affected by EU-ODA. The switch to early-stage investments appears strongest among VCs that previously faced greater levels of information asymmetry. We also find that the level of syndication declined for early-stage investments and exit performance improved. We conclude discussing the implications of our findings for public policy, entrepreneurship and innovation.

Palermo, Vincenzo; Higgins, Matthew John; Ceccagnoli, Marco (2019). Assets with "Warts": How Reliable is the Market for Technology?, NBER Working Paper, No. 21103. DOI

• Existing research has focused on why and when firms may choose to access the external technology market. Surprisingly, however, less is known about the reliability of the patents attached to these external technologies in the face of litigation. “Weak” external patents expose a firm to the potential loss of downstream revenues. To address this question we construct a novel dataset of patent litigation in the pharmaceutical industry. We exploit a change in U.S. patent law as a natural experiment to test whether external patents are more reliable than those developed internally. We find that acquired patents are more likely to fall during litigation; they are less reliable then internal technologies. Losses lead to an average reduction in market capitalization of $450 million. Overall, our results demonstrate the critical importance of the underlying reliability of external patents and provides a cautionary note to the potential benefits of accessing external technology markets.
• Also published in: Review of Economics and Statistics, 101 (1), 2019, 107-120

Young, Andrew T.; Higgins, Matthew John; Lacombe, Donald J.; Sell, Briana (2014). The Direct and Indirect Effects of Small Business Administration Lending on Growth: Evidence from U.S. County-Level Data, NBER Working Paper, No. 20543. DOI

• Conventional wisdom suggests that small businesses are innovative engines of Schumpetarian growth. However, as small businesses, they are likely to face credit rationing in financial markets. If true then policies that promote lending to small businesses may yield substantial economy-wide returns. We examine the relationship between Small Business Administration (SBA) lending and local economic growth using a spatial econometric framework across a sample of 3,035 U.S. counties for the years 1980 to 2009. We find evidence that a county's SBA lending per capita is associated with direct negative effects on its income growth. We also find evidence of indirect negative effects on the growth rates of neighboring counties. Overall, a 10% increase in SBA loans per capita is associated with a cumulative decrease in income growth rates of about 2%.
• Also online published in: Small Business Economics 2020