On Biology and Technology: The Economics of Managing Biotechnologies

40 Pages Posted: 26 Jun 2003  

Timo Goeschl

University of Heidelberg - Alfred Weber Institute for Economics

Timothy M. Swanson

University College London - Department of Economics and Faculty of Law

Date Written: April 2003

Abstract

This paper considers those sectors of the economy that operate under the same regimes of rewarding private innovators as others, but differ in that they face recurring problems of resistance, as occur in the pharmaceutical and agricultural industries. This recurrence originates in the natural processes of selection and evolution among humanity's biological competitors. The paper examines the capacity for decentralised patent-based incentive mechanisms to result in socially optimal outcomes in these sectors under scale- and speed-dependent evolution of pathogens. It demonstrates that there is a fundamental incompatibility between the dynamics of the patent system and the dynamics of the resistance problem under both types of evolution. Under scale-dependent evolution, the externalities within a patent-based system indicate that decentralised mechanisms will result in systematic underinvestment in R&D that decreases further with an increasing severity of the resistance problem. Under speed-dependent evolution, a patent-based system will fail to target socially optimal innovation size. The overall conclusion is that patent-based incentive mechanisms are incapable of sustaining society against a background of increasing resistance problems. The paper concludes with appropriate policy implications of these results.

Keywords: Biotechnology, R&D, Patents

Suggested Citation

Goeschl, Timo and Swanson, Timothy M., On Biology and Technology: The Economics of Managing Biotechnologies (April 2003). FEEM Working Paper No. 42.2003. Available at SSRN: https://ssrn.com/abstract=419080 or http://dx.doi.org/10.2139/ssrn.419080

Timo Goeschl (Contact Author)

University of Heidelberg - Alfred Weber Institute for Economics ( email )

Bergheimer Str. 20
D-69115 Heidelberg
Germany

Timothy M. Swanson

University College London - Department of Economics and Faculty of Law ( email )

Gower Street
London WC1E 6BT, WC1E 6BT
United Kingdom
+44 (020) 7-679-58 (Phone)
+44 (020) 7-6016-2772 (Fax)

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