Ex post versus ex ante prizes

Joe Stiglitz makes the case for prizes rather than patents.

A scientific panel could establish a set of priorities by assessing the number of people affected and the impact on mortality, morbidity, and productivity. Once the discovery is made, it would be licensed.

Stiglitz notes the problem with patents for medical drugs and technologies: high price = more illness/deaths. His solution is to ensure low prices by having governments fund prizes for proven innovations. So consumers pay indirectly through the tax system.

A prize system is worth trying and philanthropists are doing just that. But it need not be ex ante: set prize and then innovate. It could be ex post: innovate then set prize. That latter model would involve governments looking at good recent innovations and procuring them. The innovator would have a patent and so would have to be compensated to give those rights up.

But this compensation would involve lost profits and may involve some value creation as the costs of marketing could be saved. After all, if everyone is going to be able to get the treatment, there is no need to market it to convince people to pay a high price. This is precisely the model of the Australian Pharmaceutical Benefits Scheme. The advantage is the market test is satisfied prior to the prize amount being set. Consequently, it has a much better chance of success.

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