A prize for the Edwards plan?
I am awaiting details but this proposal from John Edwards is not entirely crazy.
Mr. Edwards said he wanted to discourage pharmaceutical companies from
obtaining long-term patents on medicines for specific ailments like
Alzheimer’s and cancer. Instead, an upfront cash prize would be made
available to serve as an incentive for research on such drugs.
I worry, however, that the prizes will be far too small. Since the social value of breakthrough medicines greatly exceeds the private profit, prizes of tens of billions of dollars would not be unreasonable. In fact, optimal prizes must increase the profits of US drug companies. Can a Democrat like Edwards sell that? And who will decide how the prizes are handed out? Can the US government award billions of dollars in prizes without significant rent seeking?
Partly for these reasons, I would much prefer a patent buyout as suggested by Michael Kremer (Kremer’s paper can also be found in Entrepreneurial Economics.) Let’s at least have a few experiments to buyout say 5 years of the time remaining on some important patents.
Do keep in mind that the problem of expensive drugs is overblown – a typical new drug will go off patent in 12 years anyway. The real issue is how best to increase the incentive to develop new and important pharmaceuticals.