Dean Baker has a pair of posts (Bird flu, bird brains, and economists and Drug patents v. the free market: where are the economists?) on the subject of the social and economic costs of drug patents, with an endorsement of an approach that might work better.
…to restate the basic case, drug patents are government granted monopolies that impose huge economic and social costs (such as people being denied access to life-saving drugs). Drug patents serve a purpose, they provide incentives to research new drugs, but it is far from clear that patents are the best way to provide such incentives. While economists have researched endlessly the cost of much smaller protectionist barriers (e.g. tariffs and quotas on shoes and pants), the literature examining the relative merits of drug patents and alternative methods of supporting research is extremely thin. It is hard to explain why economists pay so much attention to a relatively unimportant policy and so little to a policy that has huge implications.
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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 won’t find it, because economists have mostly chosen to ignore the issue.
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My favored alternative is direct public funding of approximately $30 billion a year, as would be provided under the Free Market Drug Act (FMDA) introduced by Dennis Kucinch in the last session of Congress. This would effectively double government funding for biomedical research, since it already is spending approximately $30 billion a year through the National Institutes of Health (NIH).
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One last point on the risk issue: it is important to be clear on who does what. The vast majority of the drug industry’s research is contracted out, mostly to university based researchers. Presumably, this would continue to be the case with the FMDA, so the argument has to be that the results would be far worse if the contracts and the checks came from a government sponsored corporation, rather than the drug industry.