Ebolanomics: tackling drug development

This west African health crisis is a tragedy. It could be an issue that stimulates an economics discussion. According to James Surowiecki in The New Yorker there are no real tools to stop the deadly Ebola outbreak in West Africa. The lack of treatment is disturbing. But given the way drug development is funded, it’s also predictable.

Close to the core of Economics is the guiding philosophy of utilitarianism. This idea is often summed up as ‘doing the greatest good for the greatest number’. This principle is close to the heart of so many decisions that economists recommend. Economic choices might harm individuals (a factory threatened by the removal of protective tariffs, for instance) but be justifiable because a huge group of consumers will benefit through lower prices, greater choice and possibly higher quality. Utilitarianism guides cost/benefit analysis.

The graph above comes from The Economist, and you could use it to argue (using utilitarianism) that drugs research budgets should prioritise HIV and malaria, since that may be more likely to serve the greater good. You might conclude that Ebola doesn’t justify significant research.

I might partially agree with you, before complaining that there’s a bigger problem here: diseases that mostly affect poor people in poor countries aren’t a research priority: they seldom provide a decent return, compared with the profits reaped from targeting wealthier Westerners with drugs they’ll take regularly, like statins. Market incentives for drugs companies motivate them more towards the problems of rich people than poor people. The greater good doesn’t come into it.

According to Surowieki, this business model doesn’t just fail developing countries. It also prevents the development of new antibiotics, much needed now that microbes have become more resistant to older drugs. These, again, are a poor investment prospect: new antibiotics would only be prescribed in exceptional cases, in order to delay resistance.

His suggestion for the simplest way to get these drugs made would be for governments to offer prizes for their development, and then control their use. Prizes are cost effective (governments only pay if the product works) and they harness market forces by pulling research resources into neglected areas.

There are many interesting discussion points in the economics of medicine and how much should we pay for expensive cancer treatments?