Prizes for inventing new drugs?

I can’t find any details, but apparently John Edwards will propose replacing drug patents with prizes for innovation. That’s a huge idea, and probably a good one. Some incentive for innovation is necessary, but the award of monopoly rights via patent isn’t the only, or the best way to create that incentive. Under a patent system, drugs are priced above the marginal cost of production, which distorts decision-making; every time someone decides not to take a patented drug because the price is too high, the lost benefit from that drug is pure waste.

The devil is, as usual, in the details. How do the prizes get awarded? Does some agency make a list of target innovations and the associated prizes, as the British Admiralty did when it needed a naval chronometer? Or is there a prize jury that looks at drugs after they’ve been invented and decides how much value each innovation has added? There are obvious problems with either process, and presumably the optimal system would be some messy compromise involving both prospective and retrospective awards. The biggest worry is that the budget process will cheap out on the size of the awards; maybe there’s a way to tie them by formula to total health care spending.

In any case, kudos to the Edwards campaign for raising the issue.

Update A reader points me to this Joseph Stiglitz essay. Apparently Stiglitz has been pounding this drum for some time. Can anyone point to a fully-worked-out policy proposal, with numbers, for the pharmaceuticall problem?

Additional thoughts on this and related problems here.

Author: Mark Kleiman

Professor of Public Policy at the NYU Marron Institute for Urban Management and editor of the Journal of Drug Policy Analysis. Teaches about the methods of policy analysis about drug abuse control and crime control policy, working out the implications of two principles: that swift and certain sanctions don't have to be severe to be effective, and that well-designed threats usually don't have to be carried out. Books: Drugs and Drug Policy: What Everyone Needs to Know (with Jonathan Caulkins and Angela Hawken) When Brute Force Fails: How to Have Less Crime and Less Punishment (Princeton, 2009; named one of the "books of the year" by The Economist Against Excess: Drug Policy for Results (Basic, 1993) Marijuana: Costs of Abuse, Costs of Control (Greenwood, 1989) UCLA Homepage Curriculum Vitae Contact: Markarkleiman-at-gmail.com