Chapter 3: He Who Can't Pay Dies
AIDs Epidemic 0 Engulfed Africa at end of 20th century o 33 million people affected worldwide : 23 million were in Africa drugs developed cost $10,000 - $15,000 for a year's dosage many in need could not afford :10x manufacturing cost : reflected companies' patent rights Pharmaceutical Markets o Time spent on developing relatively useless drugs while little research occurred for vaccines to awful diseases o Aim to maximize profit o Search for new drugs directed at cosmetics of the rich rather than fatal illnesses of the poor Example: Drug that cured sleeping sickness and essentially "resurrected people in comas" stopped being made because it was unprofitable. Production resumed when they found an ingredient could be used to prevent facial hair growth on women. o More is spent on marketing than research o Pharmaceutical companies neglecting certain diseases and setting high prices on drugs is a reaction to the incentives of the marketplace : Companies' responsibility to act in shareholders' interests o Successfully developed drugs must be priced well above manufacturing cost to cover the cost of research Global Pharmaceutical Market o Result of countries' poverty rather than companies' policies o Richer countries are healthier countries o No alternative system that would do a better job in pharmaceutical innovation and delivery Social value of a new vaccine exceeds what could be earned from selling it: incentives that come from the market insufficient o Market incentives prompted invention of drugs that cure diseases Alternatives to Pharmaceutical Market System No other economic system has succeeded in major pharmaceutical innovations Examples could be provision by international agencies or the state : Far less successful than drug companies Drug Companies and the Marketplace o Drug companies actively shape rules set by the market o Money spent on lobbying indicates entanglement of state and market o Governments essential in maintaining pharmaceutical markets
o Market incentives necessary in pharmaceutical innovation Public Goods o Public health - preventing epidemics and the spread of disease, protecting against environmental hazards, promoting healthy behaviors, responding to disasters : control of diseases brings wide spread gains o Scientific Knowledge Research funded by government because markets induce little basic research Governments have a role in rethinking market design and rules governing intellectual property Productivity of pharmaceutical research rests on state funding o Market Incentives Necessary to push ideas past science and into usable applications Patents Compromise solution to a problem that admits no ideal solution Officially sanctioned monopoly, powerful incentive to innovate Downside: overpricing of outputs rewards innovator but harms consumers Successfully generate inventions while inhibiting their use Inelastic demand: profit-maximizing monopolist prices far above production cost Buyers are not price sensitive Cause increases in price Only one company can legally produce the object They can set prices wherever they want because there is no competition Disliked by developing countries because they could not afford the needed drugs to save or improve the lives of their people 0 Changes in Prices of Drugs Drug companie