Intellectual Property and Health in Developing Countries

Citation: Jean Tirole (2005) Intellectual Property and Health in Developing Countries. Understanding Poverty (RSS)
Internet Archive Scholar (search for fulltext): Intellectual Property and Health in Developing Countries
Download: http://idei.fr/doc/by/tirole/intellectual.pdf
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Summary

Author aims to take stock of impact of IPRs on low- and middle-income countries’ health care.

2 reasons poor countries may not have access to needed vaccines and drugs:

• for global diseases, too expensive or unavailable due to mix of patent royalties, tariffs, politics/populism, and actual delivery costs
• for neglected or tropical diseases, unavailable due to inadequate investment, poverty of potential customers

Candidate policies include:

• donations/low prices for LDCs
• unilateral compulsory licensing
• unilateral aid
• multilateral regulatory and research programs

Atkinson and Stiglitz showed that all redistribution should be of income rather than through subsidy, taxation, and price controls over individual products. Author argues that health care is an exception because it is an input into income production, providing health care relatively equally less distortive than income taxation as means of redistribution, children are health care consumers but non-decisionmakers, and the presence of externalities especially for vaccines. Health as pillar of social democracy in rich countries supports this. However, drug price controls might be better explained by temptation of demanding low prices when marginal cost of production is low; but this may lead to inadequate R&D.

Case for international redistribution strong, but very little done: selfishness, fight against poverty a global public good (free riding altruists, in addition to selfishness), hard to get aid to the right people, means-tested aid creates moral hazard.

"Historically, a substantial, although not very visible, share of the redistribution from rich to poor countries has operated through free (or low-price) IP transfers. Technologies developed in rich countries reach poor countries, after a delay, when they go off-patent. And on-patent technologies have in the past not been covered by IP protection, a situation that is modified by the TRIPS agreement, although, as we have noted, countries can still threaten compulsory licensing in order to obtain very favorable deals from IP owners. It is perhaps unsurprising that substantial transfers have occurred in-kind through the IP system while there have been very few in cash. For one thing, knowledge transfers are much less dependent on the cooperation of rich countries’ governments. And they don’t confront quite the same delivery problems as cash transfers. But the fact that IP transfers are an important source of redistribution to low- and middle-income countries in a world desperately in need of worldwide redistribution does not imply that existing transfers are fair or efficient, as we will observe."

Authors suggest two interventions.

1. Rule-based compulsory licensing

Social planner faces challenge of designing reward level to incentivize production and price discrimination to minimize deadweight loss. Informational challenges include estimation of cost, cross-subsidization, and risk. Compulsory licensing by individual countries not optimal, as countries without credible threat of low-cost production cannot bargain. Better system in theory would be:

• rule-based rather than unilateral action by individual countries
• administered by agency that can avoid pressure from influential countries
• means-tested
• strictly prohibit parallel import/export
• other conditionality (eg meeting health info standards)

Numerous challenges for implementation, needs further research.

2. Purchase funds for neglected diseases

Briefly describes a prize mechanism for neglected diseases based on "among other things":

• specifications (eg for efficacy)
• technical approval process by independent agency
• market-based test using copayments

With funds provided by rich counties. Again many challenges, more research needed.