Developing and distributing essential medicines to poor countries: The DEFEND proposal

Perhaps the most critical task currently facing the global economy is to devise mechanism that both encourage research aimed at finding treatments for diseases that are common in impoverished nations and that achieve widespread international distribution of these treatments at sufficiently low costs to be effective and affordable. This issue has achieved prominence by virtue of the severe epidemic of HIV, which inevitably leads to the onset of AIDS, in Sub-Saharan Africa and, increasingly, in South Asia and Southeast Asia. In this paper, we analysed the economic tradeoffs involved in supporting drug and vaccine research through exclusive rights and distributing the fruits of that research to poor countries. Such research is expensive and would not be undertaken by private firms without some prospect for recovering expected R&D costs. However, even if they were developed, private property rights to the distribution of these drugs, in the form of patents and EMRs, could support inefficiently high prices and generate large deadweight welfare losses compared to the social optimum in poor countries. This system fails to account for the strong external benefits of providing additional treatments and vaccines in poor countries. These benefits accrue also to the rich countries, both for reasons of humanity and because lower economic activity in developing countries is costly in trade terms.