I’m busy!

Best known for introducing the concept of the invisible hand, Adam Smith appears (at least on the surface-level) to be the founding champion of laissez-faire economic theory. Both economists and libertarians deify Smith for supposedly pioneering a market framework consisting of purely self-interested participants. But as game theorists continue to prove that people do not solely consider their own payoffs when making decisions, economic scholars have had to reconsider their neoclassical models pointing in favor of a fully deregulated economy. Among left-leaning political circles, these inconsistencies in classic economic theory have added fuel to the notion that Smith’s ideas are merely archaic relics resting on false assumptions (see Norman 2018). These circles of thinkers are considered paternalists, who are thought to be deeply skeptical of free choice (see Goodin 1991). By nature, it follows that paternalists cannot possibly embrace the libertarian schools of thought so pervasively tied to Smith’s legacy.

This paper provides evidence that the implementation and enforcement of trade-based intellectual property reforms such as TRIPS increases domestic drug innovation, particularly in countries with a large generic pharmaceutical manufacturing industry. Using detailed data on pharmaceutical patenting activities for 102 countries and controlling for GDP, trade freedoms, and government regulation, I find intellectual property reform accelerates innovation in these countries by around 176 patent applications per year from 1985-2017. I find similar results for innovations made by “small entities.” These results suggest that pharmaceutical imitators are encouraged to innovate when faced with stronger IP laws. However, these reforms are only associated with increases in innovation for high income countries, which suggests that the innovative benefits of patent reform are almost exclusively reaped by wealthy countries.

In his controversial thesis on the “clash of civilizations,” Huntington argues that the dominant form of post-Cold War conflict will be cultural. Huntington concludes that these cultural divisions are age-old and based in deep-rooted tensions of identity; thus, diverse countries will experience more civil war (Huntington 1993, 25). Academic critics rightly note that Huntington grossly simplifies cultures into homogenous entities and reduces individuals into members of “one collective identity,” but Huntington’s hypothesis is not completely wrong: cultural divides are indeed a major source of tension in society (Sen 2006, 45). However, the degree to which these cultural tensions can manifest as a full-blown conflict is contingent on the marginalization of a significant cultural group and aided by structural factors.

This paper expands upon the growing body of research relating market size to innovation. Using detailed data on pharmaceutical patenting activities for 102 countries and 17 diseases, I focus on exogenous changes driven by cross-country reforms in pharmaceutical intellectual property strength from 1990-2015 and find consistently higher correlations of market size to innovation for diseases predominantly affecting richer countries in the study sample than those predominantly affecting poorer countries. These results suggest that there still exists a greater response to increases in market size for the diseases of the rich. I also find some small evidence that increases in intellectual property strength might have played a role in narrowing the innovation gap between these two types of diseases.

“Neoclassical economic game theory assumes that players solely consider their own payoffs when making decisions; however, experimental research continually suggests that people do not behave this way in reality. In one of the simplest decision settings, the ultimatum game, players routinely deviate from the subgame perfect equilibrium prediction; in fact, players frequently reject positive offers even if the alternative is zero payoff (Camerer 2011). While deviations from maximizing a player’s own payoffs may appear to suggest that said player behaves irrationally, these deviations are routinely replicated. Consequently, research suggests that self-interest is not the only factor at play.”