000			04450cam a22004337a 4500
001			w31272
003			NBER
005			20240125162421.0
006			m o d
007			cr cnu||||||||
008			240124s2023 mau fo 000 0 eng d
040			_aMaCbNBER _beng _cMaCbNBER
100	1		_aFrech, H. E, III.
245	1	0	_aPharmaceutical Pricing and R&D as a Global Public Good / _cH. E. Frech, III, Mark V. Pauly, William S. Comanor, Joseph R. Martinez.
260			_aCambridge, Mass. _bNational Bureau of Economic Research _c2023.
300			_a1 online resource: _billustrations (black and white);
490	1		_aNBER working paper series _vno. w31272
500			_aMay 2023.
520	3		_aIn his Labor Day address, President Biden stated that the U.S. "has the highest drug prices in the world, and there is no reason for it." For new branded drugs, the first part of that statement is supported by a recent RAND Report (Mulcahy et. al. 2021) which found U.S. average prices are 2.3 times those present in both the 32 OECD countries overall and in the UK separately. In this research, we consider the second part of that statement, and identify the economic factors that suggest some "reasons for it."
520	3		_aViewing pharmaceutical markets through the lens of the theories of global public goods and alliances, as developed by Olson and Zeckhauser (1966), we explain the observed pricing differences along with their implications the for the global supply of innovative new drugs. Similar views were advanced in two U.S. government reports (CEA 2018, 2020), and also by Goldman and Lakdawala (2018). We develop these ideas further and implement them empirically.
520	3		_aA commonly held theory presumes that drug companies in the U.S set prices for patented drugs at profit- maximizing levels that fund and incentivize substantial research and development efforts. In contrast, in the rest of the world (ROW), national authorities set prices minimally above marginal costs of production, allowing few revenues remaining to support R&D (CEA Report 2018; Blumenthal 2018; Hooper and Henderson 2022). The ROW countries are then considered to be fully free riding on U.S. research efforts. We examine this argument both theoretically and empirically, and find it wanting.
520	3		_aWe apply global public good theory to examine the pricing of branded drugs. To this end, we describe the optimal global contribution, as supported by the Lindahl pricing model, and show theoretically that existing independently determined contributions and thereby aggregate R&D levels are likely sub-optimal. Then we implement the model by calculating the contribution to the global public good as represented by short-term profits or quasi-rents received from sales of all branded drugs. These calculations are derived from pricing data contained in the RAND Report along with two market-based estimates of marginal costs.
520	3		_aWe find that, while ROW contributions are less than those found in the United States, they are more than minimal, and do not approach zero for most countries. When we regress these positive contributions on a country's size of GDP along with various controls, we find that GDP size alone is a powerful determinant of national contributions. It remains economically and statistically significant without regard to the controls introduced. In addition, we estimate how large are the contributions of ROW countries to the global public good. We offer reasons why US pharmaceutical prices and contributions per capita are nevertheless higher than those found in all ROW countries. We also suggest actions aimed to promote R&D efforts that are closer to the global optimum.
530			_aHardcopy version available to institutional subscribers
538			_aSystem requirements: Adobe [Acrobat] Reader required for PDF files.
538			_aMode of access: World Wide Web.
588	0		_aPrint version record
690		7	_aHealth _2jelc
650		7	_aHealth _2jelc
084			_aI1 _2jelc
700	1		_aPauly, Mark V. _918293
700	1		_aComanor, William S.
700	1		_aMartinez, Joseph R.
710	2		_aNational Bureau of Economic Research.
830		0	_aWorking Paper Series (National Bureau of Economic Research) _vno. w31272.
856	4	0	_uhttps://www.nber.org/papers/w31272
856			_yAcceso en línea al DOI _uhttp://dx.doi.org/10.3386/w31272
942			_2ddc _cW-PAPER
999			_c392766 _d351328