The NYT editors want to crack down on payments by the pharmaceutical industry to doctors to persuade them to prescribe their drugs for patients. The editorial proposes laws requiring fuller disclosure. While the intention is good, this is a case where a little economics would go a long way. The core of the problem in the prescription drug industry is the fact that government patent monopolies allow drug companies to sell their drugs at prices that are far above the cost of production. Given the enormous incentives associated with additional sales at these monopoly prices, there is no more hope of success in cracking down on corruption in prescribing prescription drugs than there is in the effort to eliminate sales of cocaine or other illegal drugs. As every economist knows, the way to win this battle is to take away the money. If drugs were sold in a competitive market, without patent monopolies, no one would be bribing doctors to prescribe their drug. You get rid of the monopoly you get rid of the corruption -- it's that simple. We need to finance research, but there are many alternatives to the current patent system. (Nearly half of all research is currently financed publicly through the National Institutes of Health.) The NYT should be calling for ending this source of corruption and developing better mechanisms for financing prescription drug research.
--Dean Baker
