Drug Companies and Rent-Seeking
By Arnold Kling
I discuss a suggestion that pharmaceutical companies should be treated like public utilities.
Angell is accusing pharmaceutical companies of what economists call “rent-seeking,” which Gordon Tullock defines as “special interest coalitions lobbying the government to transfer wealth to them.” Her diagnosis is certainly correct. However, her prescription is the opposite of what economists would recommend…
Marcia Angell is outraged that pharmaceutical companies earn profits and use advertising to encourage people to use their products. To her, these are evil forms of incentives.
However, the alternative to using profits and advertising is to use taxes and regulation. Those are even more coercive forms of incentives. I can choose not to buy pharmaceuticals, but taxes are unavoidable. I can ignore drug company advertising, but I cannot ignore government regulation.
For Discussion. Can you explain to a non-economist why drug research and development efforts would not be increased by eliminating profits and advertising expenditures?