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How should we support pharmaceutical innovation?

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  • Paul Grootendorst

Abstract

The question as to how society should support pharmaceutical (‘pharma’) innovation is both pertinent and timely: Pharma drugs are an integral component of modern health care and hold the promise to treat more effectively various debilitating health problems. The rate of pharma innovation, however, has declined since the 1980s. Many observers question whether the patent system is capable of providing the appropriate incentives for pharma innovation and point to several promising alternative mechanisms. These mechanisms include both ‘push’ programs – subsidies directed towards the cost of pharma R&D – and ‘pull’ programs – lumpsum rewards for the outputs of pharma R&D, that is, new drugs. I review evidence why our current system of pharma patents is defective and outline the various alternative mechanisms that may spur pharma innovation more effectively.

Suggested Citation

  • Paul Grootendorst, 2009. "How should we support pharmaceutical innovation?," Social and Economic Dimensions of an Aging Population Research Papers 246, McMaster University.
  • Handle: RePEc:mcm:sedapp:246
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    File URL: http://socserv.mcmaster.ca/sedap/p/sedap246.pdf
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    References listed on IDEAS

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    1. Adam B. Jaffe & Josh Lerner, 2006. "Innovation and its Discontents," NBER Chapters,in: Innovation Policy and the Economy, Volume 6, pages 27-66 National Bureau of Economic Research, Inc.
    2. Rexford E. Santerre & John A. Vernon & Carmelo Giaccotto, 2006. "The Impact of Indirect Government Controls on U.S. Drug Prices and R&D," Cato Journal, Cato Journal, Cato Institute, vol. 26(1), pages 143-158, Winter.
    3. Kremer, Michael R., 1998. "Patent Buyouts: A Mechanism for Encouraging Innovation," Scholarly Articles 3693705, Harvard University Department of Economics.
    4. Michael Kremer, 1998. "Patent Buyouts: A Mechanism for Encouraging Innovation," The Quarterly Journal of Economics, Oxford University Press, vol. 113(4), pages 1137-1167.
    5. Boldrin,Michele & Levine,David K., 2010. "Against Intellectual Monopoly," Cambridge Books, Cambridge University Press, number 9780521127264.
    6. Frank R. Lichtenberg & Joel Waldfogel, 2003. "Does Misery Love Company? Evidence from pharmaceutical markets before and after the Orphan Drug Act," NBER Working Papers 9750, National Bureau of Economic Research, Inc.
    7. Michael Kremer, 2002. "Pharmaceuticals and the Developing World," Journal of Economic Perspectives, American Economic Association, vol. 16(4), pages 67-90, Fall.
    8. Yin, Wesley, 2008. "Market incentives and pharmaceutical innovation," Journal of Health Economics, Elsevier, vol. 27(4), pages 1060-1077, July.
    9. Dean Baker, 2008. "The Benefits and Savings of Publicly-Funded Clinical Trials of Prescription Drugs," CEPR Reports and Issue Briefs 2008-09, Center for Economic and Policy Research (CEPR).
    10. DiMasi, Joseph A. & Hansen, Ronald W. & Grabowski, Henry G., 2003. "The price of innovation: new estimates of drug development costs," Journal of Health Economics, Elsevier, vol. 22(2), pages 151-185, March.
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    Cited by:

    1. Sonia Bhalotra & Atheendar Venkataramani, 2011. "The Captain of the Men of Death and His Shadow: Long-Run Impacts of Early Life Pneumonia Exposure," The Centre for Market and Public Organisation 11/273, Department of Economics, University of Bristol, UK.

    More about this item

    Keywords

    Pharmaceuticals; R&D; patents; prizes; innovation;

    JEL classification:

    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital

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