Napsterizing Pharmaceuticals: Access, Innovation, and Welfare
38 Pages Posted: 19 Jan 2012 Last revised: 26 Jan 2012
Date Written: January 19, 2011
We analyze the effects of a hypothetical change from the status quo with patent protection on pharmaceuticals to a world in which all patent rights on both existing and future branded drugs would be eliminated. Our analysis takes into account stylized facts concerning the nature of competition between branded and generic competition, the value of the flow of potential new drugs, the effective patent life under the existing Hatch-Waxman framework and, most critically, the essential features of prescription benefit coverage whereby consumers face relatively low marginal prices (copayments) for their prescriptions. Our calibration of a simple model indicates that the costs of Napsterizing pharmaceuticals exceed the benefits by a ratio of about 3 to 1.
Keywords: intellectual property, benefit-cost analysis, pharmaceutical policy
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