Patents are much more useful in high-CAPEX industries, but I wouldn’t call them necessary. There have been expensive capital investments without patent protection, even if they are not common.
Agree here.
’Reasonable” does a lot of work here. Economists usually define reasonable as price = marginal cost and the whole goal here is to raise price high above that level. But the point is well taken that there is more consternation over pharma pricing than is justified.
This is sort of an orthogonal point but I think the reliance of pharma on patents is an example of the “break your leg and give you a crutch” strategy that the government often takes. A huge part of the CAPEX that goes into pharma development is going through FDA approval. So if that process is not going to change, patents are essential for further pharma development. But in some lassiez-faire counterfactuals I think we could get more pharma development even without IP protection.
I think that prizes could replace the incentives of patents without most of the negative second order effects that I pointed out. Theoretically you could just match the monopoly profit with a subsidy, get the efficient quantity produced, and there are some mechanisms for dispersing the cash which avoid the rent dissipation.
Patents are much more useful in high-CAPEX industries, but I wouldn’t call them necessary. There have been expensive capital investments without patent protection, even if they are not common.
Agree here.
’Reasonable” does a lot of work here. Economists usually define reasonable as price = marginal cost and the whole goal here is to raise price high above that level. But the point is well taken that there is more consternation over pharma pricing than is justified.
This is sort of an orthogonal point but I think the reliance of pharma on patents is an example of the “break your leg and give you a crutch” strategy that the government often takes. A huge part of the CAPEX that goes into pharma development is going through FDA approval. So if that process is not going to change, patents are essential for further pharma development. But in some lassiez-faire counterfactuals I think we could get more pharma development even without IP protection.
I think that prizes could replace the incentives of patents without most of the negative second order effects that I pointed out. Theoretically you could just match the monopoly profit with a subsidy, get the efficient quantity produced, and there are some mechanisms for dispersing the cash which avoid the rent dissipation.