Professor Bainbridge...on law, politics, religion, culture & food

Mises Blogger Jeffrey Tucker on Drug Patents

He writes:

Milton Friedman ... believes the US ought to prevent drug reimportation so that domestic drug manufacturers can continue to charge very prices [Ed.: sic.] to capture the costs associated with gaining FDA-drug approval. In the dynamics of interventionist logic, this is going exactly the wrong direction.

Many issues here: including the monopoly of patents (if they exist, they do imply world government), the specifics of the reimportation case, ... , and this case as part of an overall protectionist program of the Bush administration. [Ed: links omitted.]

Wow. Could we be any more paranoid (world government)? Even rabid libertarians ought to recognize that the patent system provides significant economic benefits. It probably won't do any good, but let me try explaining it: The readily appropriable nature of information makes it difficult for the developer of a new idea to recoup the sunk costs incurred in developing it. If an inventor develops a better mousetrap, for example, he cannot profit on that invention without selling mousetraps and thereby making the new design available to potential competitors. Assuming both the inventor and his competitors incur roughly equivalent marginal costs to produce and market the trap, the competitors will be able to sell their traps at a lower price because they have not incurred the sunk costs entailed in developing the trap. Because would-be inventors will therefore anticipate that they will be unable to generate positive returns on their up-front costs, they will be deterred from developing socially valuable information. Accordingly, society provides incentives for inventive activity by using the patent system to give inventors a property right in new ideas. By preventing competitors from appropriating the idea, the patent allows the inventor to charge monopolistic prices for the improved mousetrap, thereby recouping his sunk costs. Trademark, copyright, and trade secret law all can be justified on similar grounds. If being a libertarian requires one to disavow state protection of property rights in information, count me out.