A Free Market Solution for Prescription Drug Crises

Abstract

The cost of prescription drugs is imposing an ever greater burden on families and varying levels of government. The vast majority of this cost is attributable to patent protection, since most drugs are actually relatively cheap to produce. The temporary monopolies provided by patent protection have been the main mechanism through which corporations have financed their drug research. This article examines the efficiency of publicly supported drug research relative to the current patent system. The author shows that even if publicly funded research were considerably less efficient on a dollar-per-dollar basis than patent-supported research, there would still be enormous gains from switching to a system of publicly supported research. The main reason for this conclusion is that patent monopolies lead to enormous economic distortions, including expensive sales promotion efforts, research into “copycat drugs,” incentives to conceal unfavorable research findings, and other inefficiencies that economic theory predicts would result from a government-created monopoly. The gains from publicly supported research, coupled with a free market in the production of drugs, could reach into several hundred billion dollars annually within a decade.