A prize system fails outside of pharmaceuticals – patents are a necessary compliment in other industries

But why stop with neglected diseases? The same considerations presumably should prompt us to extend the competition to all new pharmaceutical projects, or all medical innovations. For that matter, why not include all kinds of potentially patentable innovation – or even innovations of sorts traditionally managed by the copyright system, such as musical compositions or sound recordings, as one of us has elsewhere proposed?50 Although a prize system that broad might indeed be socially optimal, two considerations argue against its adoption.

First, there are some significant advantages of administrability in restricting the scope of the system to pharmaceuticals. Any prize system faces two major evaluative tasks: determining the extent of the technical advance held out by a candidate innovation and placing a social value on that technical advance (with each of these involving a number of sub-components). A number of factors combine to make these tasks significantly more tractable for innovations that take the form of pharmaceutical products than for other sorts of innovation: (1) The requirement of FDA-mandated testing of pharmaceutical products provides an appropriate filter for identifying prize candidates. Eligibility could be limited to drugs sufficiently different from existing treatments as to require clinical testing before general public use. This relieves the prize system from having to undertake a detailed examination of whether a candidate represents a genuine technical advance.51 (2) The ready availability of expert assessments of the safety and efficacy of new products, by FDA-type agencies and other bodies,52 provides a strong foundation for the prize system’s more longterm and nuanced assessments. (3) To translate technical advances into health benefits, the prize system can rely on well-developed health utility metrics such as DALYs (disability adjusted life years).53 (4) Measuring the overall health impact of pharmaceuticals though far from simple, is manageable. At least a rough approximation can be obtained by estimating (a) the number of doses that are effectively administered to patients and (b) the therapeutic benefits of those doses (with suitable modifications to encompass network effects from vaccines).54 By contrast, health benefits of many other types of innovation – such as improvements to drug delivery systems, infrastructural prevention technologies, or publichealth initiatives – are much harder to measure. (5) Although placing a non-market based social value on innovative advances will always be controversial, it is less so in the case of pharmaceuticals, since putting a non-subjective dollar value on health benefits is, for a number of reasons, increasingly widely accepted as necessary.55

Unfortunately, as we expand the prize system beyond pharmaceuticals, even just to encompass all medical or health-related innovations, we lose many (although not all) of the foregoing advantages.56 A further expansion to cover all patentable innovations loses even more. With each extension, then, we increase considerably the informational costs and hazards associated with making the necessary assessments. Thus, for present purposes we will restrict our discussion to a prize system limited to pharmaceutical innovations (and, at least initially, to those addressing neglected diseases). But bear in mind that the option remains to extend this scope; consequently, our exploration of such a system’s contours and details may serve as an examination of a core “pilot” case, with expansions raising correspondingly more complex issues of manageability and cost.