Negative innovation harms individuals- pricing algorithms, SUVs, thalidomide, me-too drugs, and addictive products are all examples.

1. Individual Harms. Perhaps most obviously, innovations can hurt the people who are exposed to them, and they can hurt them in a variety of different ways—physically, emotionally, and financially.188 Harms to individuals can come about in many different fashions, some of which are intentional while others are accidental by-products of other goals.

Often it may be beneficial for innovative firms to hurt people directly and intentionally. As the figures above indicate, harms to individuals will arise when firms have not been made to internalize the costs of their innovations to others in society.189 Although the innovation is privately beneficial to the firm, it imposes net social costs on others exposed to it. For example, the pricing algorithms firms use to obtain greater profits by marking up goods to specific customers clearly benefit the firms employing them at the expense of consumers who will pay higher prices.190 The whole point of pricing algorithms is to extract value from consumers, and consumers may have little choice but to interact with them.191 In other cases, new innovations may benefit some people at the expense of others. Consider, for example, the substantial increases in the size and weight of passenger trucks and SUVs over the past couple of decades.192 In recent years, trucks and SUVs have grown significantly, with the best-selling trucks now over fifty-five inches tall—the average height of an eight-year-old.193 They are also far heavier—more than half a ton—than they were in 2000.194 Larger trucks are safer for their occupants,195 and their size and aggressive styling may appeal to some consumers. But these vehicles are horrifically more dangerous than smaller ones to people outside of them, like other motorists, cyclists, and pedestrians.196 Their larger blind spots increase the probability of accidents, because drivers can’t see as well.197 And when accidents do happen, they are much more deadly, because the vehicles weigh so much more.198 Thus, we have a situation in which a smaller number of people are made better off at the expense of a larger number who are put in more danger.

Sometimes, innovations may harm consumers of the product themselves. In some cases, this can happen because the product’s risks aren’t known at the time of purchase. When it was first developed, thalidomide was thought to be a safe treatment for morning sickness during pregnancy.199 Only later did it become apparent that the drug could cause serious birth defects.200 The list of such examples is long.

But headline-grabbing examples like thalidomide may not be the most troublesome pharmaceuticals from a social welfare perspective. Recent research in both the United States and Europe indicates that an astonishingly large percentage of FDA-approved new drugs provide no meaningful therapeutic benefit over their predecessors, and, in many cases, they are worse.201 These studies cover a wide variety of pharmaceuticals in different countries. Their estimates for the percentage of zero and negative value drugs range from a quarter to a half of the sample.202

Along similar lines, Robin Feldman, David Hyman, W. Nicholson Price, and Mark Ratain have argued that patents can sometimes represent “negative innovation.”203 Their work focuses on situations in which the structure of patent law encourages innovation that harms consumers.204 They show, for example, how a pharmaceutical manufacturer offered a drug with toxic side effects at higher doses than necessary because lower doses were considered obvious and therefore not patentable.205

Obviously, if a drug is worse for patients than the previous technology, there is clear antisocial harm. But the true harm is even greater. Many of these pharmaceuticals are so-called “me too” drugs that mimic already existing options.206 In so doing, they reduce the demand for the original valuable drug and, thereby, undermine the incentives to achieve truly beneficial innovations.207 This phenomenon is an example of the risks that we described above. But for the existence of a patent, firms wouldn’t invest in the me-too drug because R&D costs would exceed expected returns (Box 3: negative private/negative social). Once they can patent their discoveries, though, copycat firms can expect profitable returns, so they will invest in R&D even though the social benefits are negative (Box 1: positive private/negative social). While it is socially valuable to award a patent to the initial groundbreaking pharmaceutical in the field, awarding patents to all trivially different follow-on drugs is socially harmful.

Finally, people may be harmed by innovations when they affirmatively choose to consume products that are bad for them, even though the risks are widely known. The most obvious examples include addictive products like opioids and nicotine. Social media usage also may fall into this category.208 An increasing number of studies show that social media is bad for people’s well-being, that people appreciate its harms, but that they struggle to give it up.209 At other times, people may not initially realize the risks of a new technology. For example, Apple’s AirTags, which were created to help find lost keys or luggage, have been called “a gift to stalkers.”210 These devices pose an additional threat to victims of intimate partner violence, even beyond stalkerware apps and compromised accounts, because they rely on a global network of billions of Apple devices to track whereabouts.211 Once Apple realized (in response to outcry) how easily AirTags enable cheap, efficient stalking, they modified them to try to prevent “unwanted tracking,” but this ex post self-regulation is only a partial solution and is easy to circumvent.212