Hostname: page-component-77c89778f8-9q27g Total loading time: 0 Render date: 2024-07-21T03:55:35.787Z Has data issue: false hasContentIssue false
  • English
  • Français

Funding pharmaceutical innovation through direct tax credits

Published online by Cambridge University Press:  24 August 2007

KRISTINA M. LYBECKER  and
ROBERT A. FREEMAN
KRISTINA M. LYBECKER*
Affiliation:
Department of Economics and Business, Colorado College, USA
ROBERT A. FREEMAN
Affiliation:
Department of Pharmaceutical Sciences, Texas A & M University Sciences Center, Rangel College of Pharmacy, USA
*
*Correspondence to: Kristina M. Lybecker, Department of Economics and Business, Colorado College, 14 E. Cache la Poudre Street, Colorado Springs, CO 80903, USA. Email: Kristina.Lybecker@coloradocollege.edu
Get access Rights & Permissions [Opens in a new window]

Abstract:

Rising pharmaceutical prices, increasing demand for more effective innovative drugs and growing public outrage have heightened criticism of the pharmaceutical industry. The public debate has focused on drug prices and access. As a consequence, the patent system is being reexamined as an efficient mechanism for encouraging pharmaceutical innovation and drug development. We propose an alternative to the existing patent system, instead rewarding the innovating firm with direct tax credits in exchange for marginal cost pricing. This concept is based on the fundamental assumption that innovation that benefits society at large may be financed publicly. As an industry which produces a social good characterized by high fixed costs, high information and regulatory costs, and relatively low marginal costs of production, pharmaceuticals are well-suited to such a mechanism. Under this proposal, drug prices fall, consumer surplus increases, access is enhanced, and the incentives to innovate are preserved.

Type
Articles
Information
Health Economics, Policy and Law , Volume 2 , Issue 3 , July 2007 , pp. 267 - 284
Copyright
Cambridge University Press

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Angell, M. (2004), The Truth About the Drug Companies, New York: Random House Publishing.Google Scholar
Anonymous Pharmaceutical Industry Executive (2007), personal communication with Robert A. Freeman, June 2007.Google Scholar
Atkinson, A. and J., Stiglitz (1976), ‘The design of tax structures: direct versus indirect taxation’, Journal of Public Economics, 6(1): 55–75.CrossRefGoogle Scholar
Berndt., E. R. (2002), ‘The US Pharmaceutical Industry, why major growth in times of cost containment?’, Health Affairs, 20(2): 100–114.CrossRefGoogle Scholar
Central Intelligence Agency (2005), ‘The World Factbook: Field Listing – GDP per capita’, http://cia.gov/cia/publications/factbook/fields/2004.html (12 September 2005).Google Scholar
Copeland, C. (1999), ‘Prescription drugs: issues of cost, coverage, and quality’, EBRI Issue Brief, 208: 1–21.Google Scholar
Danzon, P. and A., Towse (2003), ‘Differential pricing for pharmaceuticals’, International Journal of Health Care Financing and Economics, 3(3): 1389–6563.Google ScholarPubMed
Guell, R. C. and M., Fischbaum (1995), ‘Toward allocative efficiency in the prescription drug industry’, Milbank Quarterly, 73(2): 213–229.CrossRefGoogle ScholarPubMed
Hall, B. and J., Van Reenen (2000), ‘How effective are fiscal incentives for R&D? A Review of the Evidence’, Research Policy, 29: 449–469.CrossRefGoogle Scholar
Hollis, A. (2004), ‘An efficient reward system for pharmaceutical innovation’, working paper, Department of Economics, University of Calgary. http://econ.ucalgary.ca/hollis.htm (12 September 2005).Google Scholar
Hollis, A. (2005), ‘Optional rewards for new drugs for developing countries’, working paper, Department of Economics, University of Calgary, http://econ.ucalgary.ca/fac-files/ah/drugprizes.htm (12 September 2005).Google Scholar
IMS Retail Drug Monitor (2007), http://www.imshealth.com.web.content (25 June 2007).Google Scholar
Jack, W. and J. O., Lanjouw (2003), ‘Financing pharmaceutical innovation: How much should poor countries contribute?’, working paper no.28, Center for Global Development.Google Scholar
Kremer, M. (1998), ‘Patent buyouts: a mechanism for encouraging innovation’, Quarterly Journal of Economics, 113(4): 1137–1167.CrossRefGoogle Scholar
Lanjouw, J., O. (2005), ‘Patents, price controls and access to new drugs: how policy affects global market entry’, working paper, Agricultural and Resource Economics Department, UC Berkeley.CrossRefGoogle Scholar
Scherer, F.M. (2004), ‘The pharmaceutical industry – prices and progress’, The New England Journal of Medicine, 351: 927–932.CrossRefGoogle ScholarPubMed
Tufts Center for the Study of Drug Development (2000), ‘Maine enacts drug price controls: 16 other states taking similar action’, Tufts CSDD Impact Report, http://csdd.tufts.edu/_documents/www/Doc_233_7254_826.pdf (1 March 2007).Google Scholar
World Health Organization (2004), ‘Epidemiological fact sheets on HIV/AIDS and sexually transmitted infections, 2004 update’, various countries, http://www.who.int/hiv/pub/epidemiology/pubfacts/en/ (12 September 2005).Google Scholar