Prize Pill

Bernard Sanders introduces the "Medical Innovation Prize Fund Act of 2007" and it's a good idea. Insofar as one wants government action to provide pharmaceutical companies with a profit boost as a means of encouraging R&D efforts, it makes much more sense for the government to do this by giving the company a big pile of cash than to do it by using the law enforcement apparatus to grant the company an exclusive monopoly over the right to the medicine. Obviously, there are some administrative difficulties in involved in organizing something like this properly but aside from all of its other inefficiencies, intellectual property is an incredibly costly way of dealing with life-saving technologies since the value of new drugs to some classes of consumers will fairly frequently exceed their ability to pay.

See Alex Tabarrok for more, though he's too kind to the drug companies.

Photo by Flickr user Rselph used under a Creative Commons license

Comments

Intellectual property protection and incentives for innovation is an area where Congress could institute some incredibly useful reforms, if people weren't so hell bent on demonizing their political opponents.

Posted by Will Allen | October 25, 2007 1:21 PM

It's Alex, not Tyler. And why do you say he's
"too kind?" (Also, you linked to the wrong post.)

Also check out Michael Kremer's old suggestion about using auctions to value the patents that are bought out.

Posted by ed | October 25, 2007 1:22 PM

This is a recipe for disaster. With the government handing out research money, only the most politically connected companies will get that money. Smaller startup companies, where the real innovation occurs, will not stand a chance because they don't have the lobbying power needed to get the research money. It will slow innovation and concentrate the market to a few powerful companies. Current FDA policy already favors large companies over small ones, there's no need to make that situation worse.

Posted by fostert | October 25, 2007 1:32 PM

I guess I should disclose that I am a medical device engineer and exclusively work for small startup companies. So, yes, my statement is self-serving. Regardless, handing out research money based on who has the best lobbyists is a bad idea.

Posted by fostert | October 25, 2007 1:46 PM

I fear you are probably right regarding this particular reform, fostert. It never seems to occur to people that the same paragons of wisdom and virtue who gave us ethanol from corn would be determining which medical innovations are to be rewarded.

Posted by Will Allen | October 25, 2007 1:46 PM

fostert, the government is not handing out research money in this case (though it does for other programs, like SBIRs). In this case, the government is handing out "prize" money for research already completed in exchange for giving up the monopoly rights on a patent.

Posted by Tyro | October 25, 2007 1:58 PM

Seems like a reasonable idea (in contrast to some other winner-take-all prize competitions held in other research fields). One benefit might be to reduce squabbles over patents.

Posted by RSA | October 25, 2007 2:13 PM

Tyro, what are the odds of the prizes being handed out to the people who just happen to contribute a lot to the pertinent committee chairs?

Posted by Will Allen | October 25, 2007 2:26 PM

Patent reform is what you want with medicine.

As it stands, with the extensions Congress has enacted, few people have a respect for intellectual property. Shortening the span to reflect modern product cycles rather than extending the span to turn a patent into a cash cow seems to me to be the way to go.

Having the public finance and reward research doesn't really seem like such a hot solution.

Posted by Jeffrey Davis | October 25, 2007 2:30 PM

Will Allen beat me to it. I would add that this can be done in hard to detect ways. The criteria used to determine the effectiveness of any treatment will no doubt be negotiated with the medical companies. The negotiating table will be small and companies without influence won't get a seat. Those companies who do get to make up the criteria already know which criteria will make their products look effective, and which will not. So, they can and will use their influence to lock in their advantages.

Posted by fostert | October 25, 2007 2:35 PM

In "More Sex Is Better Sex," Steven Landsburg had a proposal regarding how IP might be handled. It would basically involve a requirement that patents be auctioned on the open market, and in 80% of cases (or whatever), the government would buy it and put it on the open market at the price of the winning bid, and in 20% of cases, the winning bidder would get it. I found a lot of Landsburg's ideas in that book rather dubious, but that one seemed fairly good to me.

Posted by Julian Elson | October 25, 2007 2:52 PM

Argh. I meant More Sex Is Safer Sex.

Posted by Julian Elson | October 25, 2007 2:56 PM

The stupidity of this plan is only surpassed by the baby bonds idea. Why would a company invest millions of dollars in say, TB treatment, when there are no market returns and only a vague hope of receiving some booby prize at the end of some arbitrarily determined ten-year time frame, which may or may not compensate them for their initial investment, let alone provide a profit? Oh, and the amount of the prize is going to be determined by bureaucrats and "experts"? Medical research is not a science fair. Companies don't do it for the psychic rewards. If you want to make drugs more affordable, just subsidize them.

Posted by Homer | October 25, 2007 3:03 PM

The only good thing about this clunker is that it's so bad it stands no chance of going anywhere.

Posted by JBJB | October 25, 2007 3:09 PM

Patent law is ham-handed way of trying to use the market to reward innovators. This is an attempt to use the government. For now, I'll stick with patent law (and I really hate the current state of patent law)

Posted by mpowell | October 25, 2007 5:22 PM