Optimal Patent Protection Length for Vital Pharmaceuticals in the Age of COVID-19

Abstract

The highly unequal access to COVID-19 vaccines observed at a critical moment of the pandemic coupled with the considerable profits cashed by the main vaccine producers have brought the debates on patent protection back into sharp focus. The trade-off between the need to encourage innovation through patent protection and the right of populations across the world to access life-saving pharmaceutical products raises important concerns that go beyond innovation stimulation. This paper leans on the inclusion of non-economic considerations based on social identity theory in optimization strategies to analyze the arguments underlying the patent length in the pharmaceutical industry and questions the measurement of social benefits of innovation in the Nordhaus’s model in its applicability to the case of vital pharmaceuticals. It proposes some new considerations akin to extra welfarism in the microeconomic analysis of the social welfare underlying traditional arguments in support of long patent protection periods. Simplified comparative statics are employed to show that, from the social welfare point of view, an incentive system in which a reward equivalent to the discounted profits is remitted to the innovator yields higher social welfare than monopoly protection without diminishing the incentive to innovate. These results suggest that in the case of vital medicines such as vaccines and antiretroviral drugs for HIV/AIDS treatment, social welfare is maximized by imposing compulsory licensing and making treatment accessible to all (potentially) infected citizens.