.@jeremycorbyn on NATO

High US drug prices as a good shot public good ‏@RobinHoodTax

Much is made of the fact that drug prices are lower in Canada and Western Europe as compared to the USA. Indeed, day trips are made across the Canadian border to buy cheaper drugs as compared to the local pharmacy pricin in a US city.

Instead of what is always the relevant public policy question. What would happen in the USA if attempts were made to seriously reduce the price of drugs. The answer is obvious, the incentive to create new drugs would be severely diminished. There are no free lunches in public policy.

Bringing in new drug to the market is a seriously expensive business these days. That is before you consider the commercial risk of inventing a drug that isn’t much better than its competitors.

Of course, you can always be leapfrogged by another drug company brining on a better drug not long after you have brought yours to market. None of this is getting any cheaper.

Innovation by specific drug company is a form of public good production known as best shot  public goods. Under a best-shot rule, the socially available amount is the maximum of the individual quantities. There is is a single prize of overwhelming social importance, such as a major drug breakthrough, with any individual’s effort having a chance of securing the prize.

The amount to be produced of a best shot public good depends on the best contribution rather than  the usual situation of any contribution is interchangeable. Another example is a large number of people shooting at an incoming missile. The best shot counts, all the others don’t matter.

High drug prices in the USA could be the price of the weakest shot or weakest link public good. Weakest shot public good is where the socially available amount is the minimum of the quantities individually provided. One example a weakest link public goods are military alliances where the success of the alliance depends upon everyone contributing

In the weakest shot or weakest link theory of public good production, the free riding countries of Europe will bring the whole show down by not making their contribution to drug research by buying at good prices from the US pharmaceutical companies.

Perhaps a better way to look at drug innovation is a good shot public good. Someone has to make a reasonable contribution; that has to be the USA because it is such a large market. Without access to good prices in the USA, there wouldn’t be enough of an incentive for drug innovation.

Military alliances such as NATO and the Warsaw Pact probably are examples of good shot public goods. They depend on a number of large countries making their contribution but I always leaned towards the crucial best shot contribution of the USA and former USSR .

In the case of the start of World War I, Triple Entente against Germany was a weaker shot public good. Its defensive wall depended on the strength of the weakest country defending i.e. the unfortified Belgian border (in both wars). The Tripartite Alliance was a best shot public good depending on the strength of Germany’s attack for ultimate success or failure.

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