Generic Drug Names and Social Welfare

Abstract

This article studies how well International Nonproprietary Names (INNs), the "generic" names for pharmaceuticals, address the problems of imperfect information. Left in private hands, the identification of medicines leads to confusion and errors. Developed in the 1950s by the World Health Organization, INNs are a common, global, scientific nomenclature designed to overcome this failure. Taking stock after sixty years, we argue that the contribution of INNs to social welfare is paramount. They enhance public health by reducing errors and improving patient safety. They also contribute to economic efficiency by creating transparency as the foundation of competitive generic drug markets, reducing transaction costs, and favoring trade. The law in most countries requires manufacturers to designate pharmaceuticals with INNs in labeling and advertising. Generic substitution is also permitted or mandatory in many countries. But not all the benefits of INNs are fully realized because prescribers may not use them. We advocate strong incentives or even legally binding provisions to extend the use of INNs by prescribing physicians and dispensing pharmacists, but we do not recommend replacing brand names entirely with INNs. Instead, we propose dual use of brand names and INNs in prescribing, as in drug labeling.