Subject: More on patents & economists
From: Laurent GUERBY <>
Date: Mon, 24 Oct 2005 01:33:13 +0200

Follow up on our May 2005 discussion of patents economic research.

At least one economist, Dean Baker (co-director of the Center for
Economic and Policy Research), speaks up on the sad state of economic
research and public economist discourses on the government granted
monopolies known as "patents", here it's for drug industry but it could
help the software case as well:
The $220 billion question (current U.S. spending on prescription drugs)
is where are the economists? Remember, economists are people that get
high blood pressure from 10 percent tariffs on shoes or pants. When Bush
put a temporary tariff on steel imports that maxed out at 30 percent,
economists all over the country became apoplectic. So why is the
economics profession overwhelmingly silent about drug patents, which are
the equivalent of tariffs of 300 percent on average, and affect a
product that is much more important to our economy and our health?

We recognize that patents are a way to provide incentives for research,
but where is the economic research that shows that they are the most
efficient way? You wonít find it, because economists have mostly chosen
to ignore the issue. 

Second post on the topic here:

Other blog discussions here:
where Dean Baker says what he thinks again even more directly in a
If economics were an honest profession, we would have hundreds of
papers that compared the efficiency of patent financing of
prescription drug research with other mechanisms (e.g. direct public
financing, as with NIH, or prize funds). The basic arithmetic does not
look good for patents. In the U.S., patent monopolies raise annual
prescription drug expenditures by approximately $150 billion above
what they would be if drugs were sold in a competitive market. For
this $150 billion, the industry tells us that we get about $25 billion
in research, roughly two-thirds of which goes to develop copycat
drugs. In other words, we spend an additional $150 billion a year in
higher drug prices to get about $9 billion in research on breakthrough

Where does the rest of the money go? The largest comnponent is the
marketing campaigns that allow drug companies to maximize the value of
their patent monopolies. While providing information is beneficial,
providing misleading information and in some cases outright lies is
not a social good. Of course, in some cases marketing includes various
forms of kickbacks or bribes to doctors who prescribe certain drugs.

When it comes to trade tariffs on imported clothes or shoes,
economists go nuts over intervention in a free market. But for some
reason, economists don't consider patent monopolies on drugs, which
can raise prices by several thousand percent above their competitive
market price, a topic worth their time.

Posted by: Dean Baker at Oct 16, 2005 3:12:13 PM

A 2004 paper:

I don't know how respectable are the CEPR and Dean Baker in
economist circles, but at least I feel now I'm not alone coming
mostly empty handed when it comes to serious economic studies of the
patent system and economist point of view in the press. In Dean Baker's
words in the second article:

Some responses argued that economists were looking at this issue. This
is a simple one Ė send me the references for the articles that
demonstrate the superiority of the patent system to other methods of
financing drug research. (I started looking into this issue in my spare
time a decade ago because I couldnít find these articles.) If the
literature is out there, and makes a solid case, that settles the
question. Iím waiting for the list.