Reaching for Mediocrity: Competition and Stagnation in Pharmaceutical Innovation

32 Pages Posted: 15 Jan 2021

See all articles by Son Le

Son Le

Georgetown University

Neel U. Sukhatme

Georgetown University Law Center; Georgetown McCourt School of Public Policy

Date Written: January 14, 2020

Abstract

We model how risk-neutral firms’ ability to obtain substantial private returns on marginal new technologies causes them to "reach for mediocrity" by investing in socially suboptimal projects, even in the presence of competition and new entrants. Focusing primarily on pharmaceutical innovation, we analyze various policy interventions to solve this underinvestment problem. In particular, we describe a new approach for a "value-based" patent system, which ties patent protection to an underlying invention's social value, and we show how such a system could incentivize socially optimal innovation.

Keywords: value-based, phamaceuticals, patents, R&D, underinvestment, innovation, social value

JEL Classification: D21, K29, L11, C72, L15, L51

Suggested Citation

Le, Son and Sukhatme, Neel U., Reaching for Mediocrity: Competition and Stagnation in Pharmaceutical Innovation (January 14, 2020). International Review of Law and Economics, Vol. 64, 2020, Available at SSRN: https://ssrn.com/abstract=3676443

Son Le

Georgetown University ( email )

Washington, DC 20057
United States

Neel U. Sukhatme (Contact Author)

Georgetown University Law Center ( email )

600 New Jersey Avenue, NW
Washington, DC 20001
United States

Georgetown McCourt School of Public Policy ( email )

Old North, Suite 100
37th & O Streets NW
Washington, DC 20057
United States

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