Wednesday, September 30, 2015

New Zealand, Dairy and the TPP

New Zealand's been pushing hard for access to our agricultural markets under the TPP.  It's worth remembering that the Kiwi agricultural sector has gone through major structural changes over the years: before Britain entered the Common Market, New Zealand had assured access to the British market but that vanished pretty much overnight with Britain's Common Market entry.  The Kiwis resisted change for a long time, subsidizing and protecting everything in sight, before Roger Douglas forced through major economic restructuring.  It was a major shock but NZ came out of it an agricultural powerhouse once again.  Eventually comparative advantage triumphs.  Painful, but maybe it would work for us, too, especially if we cushioned the transition but made it very clear that it was, in fact, a transition to an open market.

Pigovian Taxes

Sometimes when faced with a negative externality associated with overconsumption of a commodity you have a clear choice between imposing a Pigovian Tax on the demand side or on the supply side. (Who you impose the tax on is, of course, a different matter from the incidence of the tax.)   The choice comes down to administrative efficiency.  So which side should you impose it on in this case?

Mike McCracken

This is sad.  Remember learning to do econometrics using MASSAGER?  If not, get off my lawn, ya rotten kid.

Celtic Tiger Redux?

It seems that Ireland has recovered from the economic crash.  Exports seem to be surging, despite the condition of the rest of Europe.  And it looks as if the Aggregate Supply curve is sloping up. Considering how long Ireland was one of the poorest countries in Europe, primarily, perhaps, the legacy of DeValera's self-sufficiency policy, its experience should give a boost to the neoclassicals among us.

I've been reading Mark Nolan's book "Keynes in Dublin" which deals with JMK's 1933 Finlay lecture on self-sufficiency.  There are bits in it where I think Nolan is stretching his argument a bit, but overall it's well worth reading.

Musings on TPP (2): Drugs

It would be really nice to see a clear statement in the Canadian media of what the TPP issues with regards to pharmaceuticals are.  You'll see lots of vague, and sometimes hysterical, statements about extending patent protection, and extending patent life on drugs, but as I read it the key issue is not the length of life of a patent, but the length of the data exclusivity period.

As it stands, patent life on pharmaceuticals is 20 years.  Research based drug firms tend to patent very early in the development process for a drug, to ensure that they're not beaten to the patent office on a promising drug by another firm which happens to be doing research in the same direction.  That means that (assuming the drug makes it to market, and most compounds which look promising in the early stages of research wash out as the drug trial process proceeds) by the time a drug makes it to market it has much less than 20 years of patent life left - we usually talk about its having seven to ten years left.

Once a drug goes off patent, generic copies can enter the market.  The press has always assumed that generics were somehow automatically going to sell at rock-bottom prices: recent American experience, however, has shown that basic economics still applies: give a company a monopoly and it'll exploit it. Generics do have lower costs than brand name drugs (costs, not to be confused with prices) because they don't have to go through the same expensive, multi-year clinical trials process.  they just have to prove that they're bioequivalent, meaning basically that they have the same active ingredient as the brand name drug and that that ingredient is released into the bloodstream at the same rate as it is by the brand name drug.  Usually that works out OK, although sometimes there are problems.

For a generic firm to prove that its drug is bioequivalent, it has to have access to data on the rate at which the brand name drug's active ingredient is released into the body.  The research-based drug companies provide that data to the regulatory agencies as part of the process of getting approval.  Data exclusivity, or data protection rules restrict access to this data by requiring that the regulators keep it confidential for a certain period of time.  Generic manufacturers can't begin their own drug development until they have access to this data.

At the moment, data exclusivity generally seems to be five to seven years.  Whether that makes a difference to the originator drug's period of market exclusivity depends on how many years of patent life are left when the drug gets approval.  If there's a good chunk of patent life left at time of approval, data exclusivity shouldn't make much difference to anything.  If there's not much patent life left, data exclusivity can make a difference.

You'd think there would be a better way of compensating for differences in the length of the development process than messing with the data protection period.  Perhaps the story is different for biologics?

Musings on the Trans Pacific Trade Partnership (1)

Is it possible that some kind of TPP deal would be an easier sell to Canadians if the Americans weren't quite so blatantly mercantilist in their approach to these matters?  I know that as economists we argue that there's an economic benefit from opening the market from our side, but even so......