(NAS Colloquium) Science, Technology and the Economy (1996) / Chapter Skim
Currently Skimming:
Evaluating the federal role in financing health-related research
Evaluating the federal role in financing health-related research
Pages 63-70
The Chapter Skim interface presents what we've algorithmically identified as the most significant single chunk of text within every page in the chapter.
Select key terms on the right to highlight them within pages of the chapter.
From page 63... ...
Toronto, ON Canada MST 1X4 ABSTRACT This paper considers the appropriate role for government in the support of scientific and technological progress in health care; the information the federal government needs to make well-informed decisions about its role; and the ways that federal policy toward research and development should respond to scientific advances, technology trends, and changes in the political and social environment. The principal justification for government support of research rests upon economic characteristics that lead private markets to provide inappropriate levels of research support or to supply inappropriate quantities of the products that result from research.
|
From page 64... ...
For rival goods like envelopes, the "invisible hand" theorem applies to an internal market within the firm just as it would to an external market: a pure price system with strong property rights leads to efficient outcomes. An efficient firm will tell the managers of the envelope division that they are free to charge other divisions whatever price they want for these envelopes.
|
From page 65... ...
At the level of the nation, just as at the level of the firm, relative costs drive choices between price systems and tax subsidy systems. The major cost of the price system is monopoly price distortion, which occurs when a good is sold at a price that exceeds marginal cost.
|
From page 66... ...
Recent legal challenges to the use of price discrimination by pharmaceutical companies in their sales to managed care organizations may unfortunately have limited the use of this promising strategy for minimizing the losses from monopoly pricing. Monopoly distortions can become larger when production of a good involves a chain of monopolists.
|
From page 67... ...
Third, until a product has run the course of its useful life, its entire revenue stream will be highly uncertain. At an early stage in the life of a new product, such as a patented drug, the stock market valuation of the company may be taken as an indication of the best estimate of the present value of all the revenue streams held by the firm, and changes in stock market valuation when a new product is approved may give some indication of the present value of the anticipated revenue stream from the good.
|
From page 68... ...
More seriously, other seemingly reliable measures could significantly bias government decisions. For example, because profits are observable and salient in political debates, a government agency that subsidizes research may want to maximize profits earned by firms that draw on their research.
|
From page 69... ...
Although strengthened property rights (such as lengthened market exclusivity) might have made it possible for a private company to capture more of the demand increase resulting from such research, problems with enforcement are similar to those of aspirin: it would be difficult to ensure that other beta-blockers would not be prescribed for the same indication, diluting the return to the manufacturer of propranolol.
|
From page 70... ...
It would be very useful to have even ballpark estimates of the total monopoly price distortions induced by the evolving pricing policy being used by the patent holder. Conclusions Federal agencies often use estimates of industry revenues or consumer surplus to make claims about benefits or returns to their investments in scientific and technological research.
|
Key Terms
This material may be derived from roughly machine-read images, and so is provided only to facilitate research.
More
information on Chapter Skim is available.