The Pharmaceutical Industry: How Much Is Too Much?

Prevailing wisdom suggests that the market mechanism serves to allocate funding for research and development on diseases in proportion to the expected return on investment for the new drug. Where the market mechanism fails to allocate resources equitably, how can governing bodies correct the failure of the market mechanism to encourage investment in previously neglected diseases? Pharmaceutical firms have largely concentrated their efforts on meeting industrialized market demands. Current efforts to increase access to essential medications in developing countries (notably for HIV/AIDS therapies) inevitably confront the issue of lower prices. How do lower prices interact with the market mechanism to decrease incentives for investment, and to what degree is this acceptable (and by whom)? How can the interests of inventors be balanced with those of the public?

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