January 02, 2008

As reported Monday in the Wall Street Journal, "a handful of Western nations and international bodies" are trying to implement a system of incentives for drug development in which "donors commit to buying yet-to-be-developed vaccines in bulk for poor nations, if drug makers are able to deliver a product that meets specifications and a price can be settled on in advance."

This "advance market commitment system" sounds faintly like the orphan drug program in the U.S., for patient populations otherwise too small to yield sufficient profitability incentives for investment in cures for rare diseases. And---no doubt about it---there is some real potential merit in this sort of approach, particularly in comparison with the current efforts of governments to steal patents when prices are not to their liking.

But---let's face it---significant problems remain. Notwithstanding the claims of some advocates, this system would not replace government with the market as the institutional vehicle with which decisions are made on who will produce what and when. "Western nations" means... western governments. And "international bodies" means... well, there is no need to ask. And since it is governments and international bureaucrats who will do the deciding, the actual reliability of the advance market commitments is less than entirely obvious. After all, governments and bureaucrats face powerful incentives to mortgage the future in favor of the present, that is, to make decisions that are myopic. And precisely how effective does a new vaccine have to be to qualify for the agreed price; and just how easy is it likely to be to define such contractual parameters in advance for nations in which health statistics are not exactly world class? Moreover, "specifications" are not so easy to define in advance when the science is fuzzy or unknown; and disputes over the contracts inevitably will be drawn into the international court system, itself not a great example of analysis and jurisprudence untainted by political considerations.

Whatever the potential promise offered by this approach, let us not forget that it is a top-down system rather than a market system, and so, accordingly, all the usual problems observed when markets are circumvented are unlikely to disappear.

Posted by Benjamin Zycher at January 2, 2008 03:07 PM

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