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KMID : 1170320120180030121
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Korean Journal of Health Economics and Policy
2012 Volume.18 No. 3 p.121 ~ p.138
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Real Option Analysis of Pharmaceutical R&D Investment under the Nogoya Industry
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Jang Hee-Sun
Park Ho-Jung
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Abstract
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The Nogoya Protocol which aims to establish a rule on access to genetic resources and their benefit sharing is expected to provide substantial impacts on investment in pharmaceutical industry which depends on genetic resources. This paper attempts to analyze the effects of the Nagoya Protocol on pharmaceutical investment by considering uncertainty of demand and R&D when extra costs under the Nagoya Protocol is introduced as a form of loyalty to imported genetic resources. A real option model is used to consider irreversibility of investment and uncertainty at the same time in a stylized framework. Top 20 pharmaceutical companies are examined to identify feasibility of their investments under the protocol. The result shows that preemptive investment strategy is necessary to preoccupy genetic resources and to enhance R&D capacity.
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KEYWORD
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Nagoya Protocol, Pharmaceutical investment, Real options
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