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Is It Possible to Have Cheaper Drugs and Preserve the Incentive to Innovate: Reforming the Drug Approval Process According to Market Principles

Author

Listed:
  • Corinne Sauer

    (Jerusalem Institute for Market Studies)

  • Robert Sauer

    (University of Bristol, Institute for the Study of Labor (IZA), Jerusalem Institute for Market Studies)

Abstract

This paper argues that drugs are expensive not because of a lack of competition among research-based pharmaceutical companies, but because of a lack of competition in the drug approval process. Lack of competition in the drug approval process has led to exceedingly high drug development costs. High drug development costs combined with artificially low drug prices, obtained through price control legislation and legislation that eases the entry of generic products into the market, has caused lower levels of pharmaceutical research and development, innovation, and economic growth.

Suggested Citation

  • Corinne Sauer & Robert Sauer, 2005. "Is It Possible to Have Cheaper Drugs and Preserve the Incentive to Innovate: Reforming the Drug Approval Process According to Market Principles," Working Papers 5, Jerusalem Institute for Market Studies (JIMS).
    • Handle: RePEc:jms:wpaper:5
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    More about this item

    Keywords

    Privatization; Competition; Monopoly; Innovation; Drugs; Generics; Pharmaceuticals;
    All these keywords.

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • F02 - International Economics - - General - - - International Economic Order and Integration
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • K23 - Law and Economics - - Regulation and Business Law - - - Regulated Industries and Administrative Law
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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