Some questions...

This blog is born, because i have so many questions, that i need some place to pour them. I ll try to think some answers from an economic perspective. This will also work for me as place to come back when i have to pick a theme for my thesis.
I was surfing a website that a friend talked to me about, it is called:

Dropping Knowledge

My friend is studying economy, she is very much into development economics, but maybe not thru an orthodox approach. (She still owes me an explanation about what is fair trade). I usually don't surf websites like that, normally you find a bunch of people talking about changing the world from a perspective where they know what they want but think of nothing to do, or if they think the don't do it in a realistic way. I would not be hard to tell i am judgemental, but i am trying to change that. So i gave the site a try, and it was great, what a good source of material for an economist (or maybe a student like me).

The question that caught my attention was:

"With all of the major pharmaceutical companies making a mint off of prolonging life, or rather the maintaining of it, will they ever cure cancer, AIDS, diabetes, and any other fatal disease for which they make a profit?" Kevin Peck , 34, Maineville, OH, USA.

And that's a good question, some people would think about the immorality of a company that thought that way. Mainstream economics don't care about morality yet, problems are approached from an incentives point of view.

This was a hard question, and i don't even think about answering it, but i would like to at least think about it.

Pharmaceuticals, are companies whose profits are mainly based on research and monopolies over their discoveries. A company discovers, for example, a cure for lets say flu, then they are given the right to produce the medicine, or license it to whoever they want, for a limited amount of time ( usually very long). The reason of this is that this way companies have incentives to research, that otherwise if other companies could produce freely what this company spent to discover it will not have incentives to research and find a cure at all.
This question goes a bit beyond, what if companies are making such large profits now, that they don't have incentives to develop a cure for cancer, that would make all their actual production of medicines obsolete. Even if they did develop it, it could be better to make some more profit from regular medicines before releasing the discovery.
The classic approach would say more competition is needed, because monopoly power has gone too far. But how do we do that, there are no specific restrictions to open a new pharmaceutical company, why aren't new companies joining this market, if large profits are to be made. Maybe because is to expensive to catch up with companies that have developed knowledge for a long time, it make is way too expensive, and maybe inefficient to research all over again or at least to leave the company able to compete in the market. So copyright laws ended creating a monopoly of knowledge, and that may be more power than an executive can handle. Situations like the one described on the website's question, could not be so crazy.
A solution for the described situation could be grant more monopoly power (more time of copyright protection) so the profits rise even more, and more competition joins the market. Even though this may be a classic approach, I would rather lower the monopoly power by granting less time of protection, and making it less expensive for new pharmaceuticals to join the market. The rate of discoveries now is not the same as it was when most copyright laws were enacted, so maybe protection periods need to be revised, so competition could be introduced in medicines that are not state of the art. That could introduce some competition to this market, without drawing too much research incentives. This is related to a topic i will talk about in the future, concerning discographics, music, copyright laws and Internet.

Feel free to post some comments.