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About the article
Published Online: 2013-03-20
Published in Print: 2013-01-01
As discussed in Section 4, existing research discusses the general issue of global public goods but does not address the joint allocation problem of efficiently incentivizing R&D and efficiently providing goods with positive external consumption externalities.
The textbook example of a Pigouvian instrument is the Pigouvian tax applied to a polluter so that its marginal cost lines up with the marginal cost to society.
Arguably though, the initial use for a new drug may not be its more important or valuable use. Hence, there needs to be a mechanism to incentivize continuing R&D after initial approval for marketing.
In a more general context, Grossman and Lai (2002) discuss the optimality of streamlining IP protection across countries.
The threat of compulsory licensing after a drug is developed is such that nations would pay less with compulsory licensing than what their citizens would actually be willing to pay without it. Perversely, direct willingness to pay in poor nations is effectively suppressed.
Rather, it is those companies (and the patients who consume their therapies) who do not bid enough to win the priority voucher who ultimately pay, mainly through slower expected review times from mobilization of FDA towards the winner.
Although the analysis of Peloza and Steel (2005) is mainly US-focused and does not distinguish between types of giving (e.g., domestic vs. foreign giving, health vs. religious giving), we interpret the reported elasticity as broadly reflecting how responsive altruistic giving is to the price of donation.