January 01, 2006
Paying for vaccines
Winterspeak at Asymmetric Information points out, correctly, that if whatever company invents an AIDS vaccine isn't allowed to charge extortionate prices for their products through the legally-granted monopoly rights called "patents," they will make less money on each product they develop. He doesn't bother to point out that, if they are allowed to charge such prices, people will die needlessly, and that, in the case of an infectious disease, leaving one person unprotected imposes risks on others.
Therefore, if we rely on the patent system to finance the development of an AIDS vaccine, either the price of the resulting vaccine will be too high, leading to preventable deaths, or the incentive for research will be too low, leading to preventable deaths. Either the vaccine needs to be developed with public money, or we need to offer a huge prize to whoever invents a vaccine. In either case, the medicine can then be sold at is (probably low) marginal cost of production and distribution.
Obviously, then, financing vaccine development through monopoly rights is suboptimal.
The alternatives are grants for vaccine-development work (or the development of vaccines by public agencies) or a prize for success. The demonstration that a patent buyout (the economic equivalent of a prize) outperforms a monopoly grant is freshman-level economics: the losses to consumers from monopoly pricing always exceed the gain to the monopolist.
So I wonder what concealed this elementary point from Winterspeak, or led him to conceal it from his readers? Could it be the same set of political prejudices that led him to refer to Paul Krugman as a "frothing nutter"? Somehow the sanctity of "intellectual property" monopoly rights -- the very crudest sort of governmental interference with market transactions -- has become an article of conservatarian faith.
As the fraction of GDP that consists of payment for ideas, as opposed to the materials and labor requiredt to produce an additional unit of a product, grows, the inefficiency of the patent system (and the copyright system) becomes increasingly important. So, therefore, does the importance of developing alternatives, which will, of necessity, be imperfect.
As the AIDS-vaccine problem demonstrates, this is literally a matter of life and death. That means that it's not a topic on which we can afford sloppy, ideological thinking, or a political process dominated by campaign contributions.
