Medical Innovation Inducement Prizes
Discussion
Jamie Love and Tim Hubbard:
"Many are doubtful that increased direct funding would generate sufficient incentives or be managed efficiently enough. An alternative market-based approach is one in which R&D organisations compete for rewards for specific R&D output, referred to by economists as a prize model (Wright 1983; Kremer 1998; Shavell and van Ypersele 2001). In a simple formulation, governments would place large sums into a fund that would be allocated every year to firms that bring new products to market. This could work with or without patents. If products were protected by patents or other intellectual property claims, the government could grant compulsory licenses (a procedure allowed by trade agreements to override monopoly rights on a patent, in return for compensation to rights owners; see Box 1) and permit rapid introduction of generic competition. The reward system could be a lump-sum payment, eliminating any incentive to continue to market the product, or a long-term payout structure, which would depend upon evidence of both usage and efficacy. Prize systems could be designed to be fairly similar to the current system, with big payoffs for successful entrepreneurs, but even with this approach, there would be huge opportunities to improve welfare. The reward system could be more rational than the existing system, allocating greater rewards for innovative products and less for ‘me too’ products that do not work better than existing products. Premiums could be given for therapies that address treatment gaps or for inventions that pave the way to new classes of drugs.
Organisations competing for prizes might be expected to behave secretly to ensure that they are the ones to obtain ‘credit’ for the fruits of their work. However, progress in research is also driven by free exchange of information. It may be possible to design models that both reward R&D outputs and at the same time encourage complete and continuous openness with intermediate research outputs. There are now a number of examples of open collaborative public goods models (Cukier 2003), such as those used for the Human Genome Project. The proponents of such models point to the success of GNU/Linux in the software field as evidence that major projects can be undertaken with radically different business models. One of the benefits of complete openness is that it allows independent and open evaluation of R&D outputs, which helps in the allocation of ‘credit’ whether in the form or prizes or new research grants. The open-access publishing movement (Brown et al. 2003) has the potential to help in this process by allowing independent analysis of published science, which will help research funding agencies measure research outputs."
(http://www.keionline.org/node/848)
Source: February 17, 2004 paper in PloS, A New Trade Framework for Global Healthcare R&D, Tim Hubbard and Jamie Love.
More Information
General treatment at: Innovation Inducement Prizes
KEI Online has a special page monitoring general and medical innovation prizes at http://www.keionline.org/prizes
See also:
- Interview about Prizes: Eyes on the Prize: Incentivizing Drug Innovation without Monopolies, Multinational Monitor, MAY/JUN 2009, VOL 30 NO. 3
- November 12, 2007. James Love. "Would cash prizes promote cheap drugs?" The New Scientist.