Question

Suppose a legislator introduced a bill that would decrease patent life for new drugs from 17 years to 10 years, based on the argument that it would reduce deadweight loss through lower prices. What argument could you make against such a change?

Answer 1

Solution -

In order for the legislation to have a net positive effect, any social cost must be more than offset by the lower prices when the patent expires. Firms would engage in less research and development. If a firm believed that a project could only become profitable in the 11th through 17th year of the patent, it would not be funded, or may be funded at a less than efficient level. The reduction in health that occurs as a result represents the social cost of the policy.

NOTE - DOUP VOTE THANK YOU HAVE A NICE DAY