There are many policy proposals aimed at curtailing the high cost of pharmaceuticals and/or encouraging innovation. Briefly analyze the costs and benefits of the following policy proposals:
a. The government uses an auction to estimate the private value of patents and then offers to buy out patents at this private value. Most patents purchased would be placed in the public domain.
b. The government offers a $5 billion prize to the first drug company that develops a cure for Alzheimer’s disease.
c. In order to control the rising costs of new drugs, the government puts a cap on drug prices at $10,000 per month.
a. Benefits:
The advantage of this mechanism could in a certain case be a reduction of transaction costs and other costs because the parties are not required to agree upon certain remuneration and lengthy proceedings need not always takes place before allowing the use of the patented invention.
The application of a liability rule does not depend on the funds of a potential user.
The administration possibly has a better, more objective, view of economic aspects and the possibility of making fast and therefore effective decisions
Costs:
It may be difficult for the administration to identify situations in which liability rule is preferable
A negative influence of macroeconomic aspects
b.If companies are capable of steering their research agendas to take advantage of profit opportunities, then public policy interventions like incentives to discover these drug types can work.
A number of innovative new drugs cost more and have preventive
and curative effects that result in greater use.
In addition, new "lifestyle" drugs have been developed that improve
the quality of life and can be taken for decades.
Prescription drug expenditures are likely to continue their rapid
rise, driven by new drug discoveries and greater use of drugs
(particularly among an increasingly older population), as well as
by the growing demand
If instead companies are stumbling around in the dark and producing drugs more or less at random then these sorts of inducements are at best useless and at worst wasteful.
c.New drugs are priced according to their therapeutic value and
the availability of good substitute.
A new drug can also be priced according to concept value.
When generic versions enter the market after the patent on a
branded drug has expired, the branded drug loses the market share
but its price increases.
There are many policy proposals aimed at curtailing the high cost of pharmaceuticals and/or encouraging innovation....
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