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EQUITY ADVANTAGES AND HAZARDS OF THE DEFICIT REDUCTION

The advantages and dangers of deficit reduction: the role of fiscal rules and budgetary institutions

Commentary on: Joaquin Ayuso-i-Casals, Servass Deroose, Elena Flores and Laurent Moulin (Editors), Policy Instruments for Sound Fiscal Policies. Fiscal Rules and Institutions, Palgrave MacMillan, Hampshire and New York, 2009
http://us.macmillan.com/policyinstrumentsforsoundfiscalpolicies


The tsunami of economic downturn is revealing a stunning decline in the English public finances: the government deficit has increased fivefold in a year, the deficit and more than two digits as a percentage of GDP and public debt will drag it to levels that can easily exceed the 60% of GDP.

budget in this changing context, marked by the asymmetric impact of the economic crisis in the European Union countries, it is convenient and useful to ask for the role they have played and should play in the future, both in terms of economic growth and crisis and recession, fiscal rules and institutions budget of each country and the common form taken by the EU.

The book edited by Joaquim Ayuso, Servaas Deroose, Elena Flores and Laurent Moulin, Directorate General for Economic and Financial Affairs European Commission) entitled "Policy Instruments for Sound Fiscal Policies", published by Palgrave Macmillan in late of 2009 provides an excellent opportunity to review the role of budgetary rules and institutions both from the standpoint of economic theory from the empirical point of view.

This book has its origins in the Workshop of the Directorate General for Economic and Financial Affairs of the EC held in Brussels on 24 November 2006. The time has not dulled the issues discussed in this workshop but have added today. Although at that time had not yet glimpsed the devastating impact of economic crisis on most public accounts of EU countries, the lessons to be learned from the experience in implementing fiscal rules and budgetary institutions is and will be essential to help the accounts of nation states to better manage the impact of the economic cycle.

The aim of this book consists of contributions that review the status of theoretical and applied knowledge on economic incentives related to (i) changes and reforms in the rules of the annual budget cycle, (ii) the application of numerical fiscal rules, permanent limitations of fiscal policy in terms of budget performance indicators-summary of macro-variables on public or deficit , expenditure, revenue or debt, and (iii) the creation or reform of national budgetary institutions through independent agencies that can take care of the macroeconomic projections for the purpose of estimating revenues and expenditures, or recommendations on fiscal policy .

The underlying concern in most chapters of the book lies in learning budgetary experience of the past characterized by the trend towards deficit and the pro-cyclical fiscal policy in order to improve understanding of the causes and strengthen the Treaty and the excessive deficit procedure. Or policy instruments to support the improvement of incentives in a sustainable budget management can be classified into two groups or approaches. One is the approach based on improving budgetary institutions-contract approach-(rules, procedures and institutional framework). The other is the approach that privileges the delegation of fiscal policy in independent instuticiones-delegation approach.

The book is structured in four different parts in its scope and ambition. In the first part, we analyze the causes of the trend of budget deficit and whether the extent of fiscal rules and budgetary institutions have been effective in encouraging fiscal discipline in each country. The second part of the book, marking a normative character, is devoted to the analysis of the desirable conditions that must follow the rules and institutions for efficient management of the deficit depending on the level of fiscal decentralization.

The third part of the book is intended to study the incentives of institutional reforms on the creation or modification of discretionary incentives public decision-makers in fiscal policy. In the latter part of the book presents two interesting case studies by analyzing the rules and institutions in Sweden and Belgium.

Krogstrup and Wyplosz (Chapter 2) to assess the risk that the deficit reduction policies of fiscal policy becoming pro-cyclical. These authors present a model in which the application of numerical fiscal rules applied to the unadjusted budget balance are not optimal and may even worsen the fiscal results in terms of welfare, and numerical restrictions may be socially optimal when combined institutions adequately budget that encourage productive spending. Consideration of the cyclically adjusted budget balance in the Stability and Growth Pact of 2005 and the consideration of the medium-term debt are on the appropriate line and reduce the risk of inducing pro-cyclical policies.

Broesens and Wierts (Chapter 4) show the existence of surpluses in the public accounts are related to a smaller number of spending ministries, political stability, strict fiscal rules and greater transparency in fiscal policy. In addition, the aging of the population helps to explain why some countries have a surplus and other no.

In the second part, Halleberg, Strauch and von Hagen (Chapter 6) analyzed empirically the impact of fiscal rules and budgetary procedures on public finances in the EU15 countries between 1985 and 2004. The results of these authors provide useful guidelines for assessing the effectiveness of the measures of contractual or based on delegation: a more centralized budget, lower debt, the delegation of decisions on the economy ministry contributes to lower government debt one-party or no political competition colaición, the contract rate approach measures that impose restrictions and contribute more multi-annual targets fiscal discipline in countries with coalition governments scattered and internal competition.

Hodson (Chapter 7) contradicts the observation that countries have taken steps to delegate are the worst compliant with the Stability and Growth Pact (SGP) compared with those who take contractual measures: all countries, both those of a type and the other, have failed to meet the medium-term objectives of the SGP, and also there is a trend to the adoption of numerical rules by all countries.

The third part of the book, Balassone, Franco and Zotteri (Chapter 9) discusses the suitability of the so-called "Rainy Day Funds (RDF)" employees in various states of the United States since the seventies to the EU countries. The RDF are simply accumulate in a fund surpluses in the boom years that can be stored for use in years of budget problems, while maintaining the balance BUDGETARY. The authors suggest that the RFD is not useful to change the incentives of the non-adherent PEC. RFD not yet being a good option for countries with high deficits, it could serve to mitigate the rigidity of the constraint of 3% of EU public deficits.

Chapter 10, Ayuso, González, Moulin and Turrini provide a description of the numerical fiscal rules (rules on stock and debt, expenses and income) applied in 25 EU countries and analyze their influence on budgetary outcomes. This chapter, which perhaps is the core of the contribution of the book, uses a proprietary database covering the period 1990-2005. The adoption of numerical fiscal rules has been a growing phenomenon in most countries: less than 20 rules in 1990 has spent nearly 70 in 2005, 30% of the rules applicable to other central and local governments 30% . Half of these rules are multiannual. However, it is still fairly small number of studies that have analyzed the effectiveness of these policies at national states. Lower deficits are associated with numerical fiscal rules that affect a larger proportion of public sector budget and the presence of control and punishment mechanisms of compliance also contribute to improved fiscal performance.

The fourth and last part of this book discuss in detail the advantages and disadvantages prespuestario Swedish model (Chapter 14) and the Belgian budget process (Chapter 15).

The main virtue of the book edited by Ayuso et al subject of this review is to provide a comprehensive review of state economic knowledge on the effects of the reforms in budget systems of EU countries based on the adoption of numerical fiscal rules and the delegation of certain criteria or tax decisions independent agencies helping to facilitate a more informed and rigorous discussion on necessary incentives for more efficient management and balanced medium to long term sustainability of public finances.

At one stage in the current economic downturn, spending more than you enter is used to help maintain economic activity and helps the drop in revenue is not higher. However, the high stimulus English tax is not the main source of fiscal imbalance in English: the European Commission has estimated that in 2009 the primary structural deficit (which will still be beating the recession) is 8.2%.

If public expenditure is used productively and efficiently, our children will be richer and have greater well-being. Then, they will have problems to deal with debt and this will represent a smaller proportion of their wealth. In the medium and long term, the cost of the deficit depends on the quality of spending: what is spent (composition), results are achieved (effectiveness) and the cost of achieving these performance (efficiency).

We have evidence that the composition of public expenditure is relevant to predict the effects of spending on growth: infrastructure and education, and partly health, promote growth. However, not enough direct spending productively, if expenditure is high and the results achieved are low, the efficiency of public spending is low and public finances are not sustainable in the long term. Herein lies the Achilles heel of the English public finances as their level of efficiency is the lowest in the eurozone.

A report by the European Commission last July says that the quality of English public spending in five of six categories of spending (education, R & D, infrastructure, public order and security and general services) is poor, being only good in health services. On average, the quality of English public spending is among the lowest in the eurozone countries. Public infrastructure have a high level of spending and poor results. In education, the level of spending is not the highest, but the results are poor. R & D spending is low but with very low efficiency. In universities, very poor results despite having a high number of staff, resulting in a significant inefficiency.

there is no time for excuses designed to further delay the urgent measures of independent evaluation of the efficiency of spending programs and reforms based on their results.

Lori Anne Scime Topless

PRICE OF GENERIC: LOW PRICE AND DISCOUNTS

(This article has been partially published in MAIL PHARMACEUTICAL, week of March 29, 2010)

The agreement Interterritorial Council of March 18 again includes a number of proposals of measures aimed primarily at reducing the price of generic drugs which preaches an alleged drug-expected savings of 1,500 million euros annually to the government budget that would add more than 100 million savings for the citizen's pocket.

star measures to achieve these savings are basically four: first, modify the calculation of the reference price (the maximum amount paid by the NHS) by an off-patent drug by setting it at the lowest price, and second, reduced by an average of 25% the price of generic drugs and increase the price reduction for generic drugs that are not in Spain but in other countries, third, setting maximum prices for medicines for minor ailments excluding public funding which overcome them (targeted funding) and, fourthly, to establish a ceiling the percentage of laboratories and wholesale discounts they can offer to community pharmacies (5% expandable up to 10% for generic drugs).

The English situation on the limited price competition at the level of retail prices in the generic market has a striking resemblance to that observed in other countries that have implemented reference pricing systems or maximum price regulation of generic.

In several European countries (Germany, France, Netherlands, Norway, United Kingdom, Sweden), when applied to the reference price system has witnessed the emergence of deep discounts to pharmacies on the price procurement of medicines that do not move the price to the consumer.
In some European countries have substantially reformed the regulatory systems of pricing and reimbursement of generic drugs through better policies aimed at promoting price competition from generics as a means of improving efficiency, and improving policies deepening the existing system design setting maximum reimbursement level, measures for monitoring the competitive prices in order to reimburse pharmacies only the actual costs of acquisition, and procurement based on market instruments such as auctions public.

The objective of efficient policies to promote price competition should be to progressively lead and before long the price of drugs, both the industrial selling price as the retail, to its marginal cost production and distribution when the period has expired and gone legal protection barriers of entry into the market.

price reduction up to the marginal cost will depend on both the level of the latter as the brand price level prior to the entry of generics. Thus, price reductions can and should be, with justification, be different both between active (And between different presentations of the same active ingredient) and between countries.

The measures taken by the Council on the price of generic point in the line of improving and deepening the reference price system, advocating minor changes rather than structural reform policy of promoting competition in this market . Although no doubt point in the right direction, there are many shadows that justify skepticism about the magnitude of the real impact of the measures announced.
today
What drives drug spending are not drug prices but the number of prescriptions per person. Reduce the price by decree is not the same as reducing spending. To the extent that the NHS is more interested in the impact of generic policies on the cost of insurance by the sheer impact on the price of generics, it is important to note that the reduction in selling price the public until the marginal cost (efficiency condition) does not guarantee the reduction of NHS pharmaceutical expenditure in the same proportion as the price (or, sometimes, the reduction of it) or guarantee either the efficiency of spending, as this also depends on changes in the appropriate and inappropriate use of medicines.

The existence of large discounts on purchases made generic pharmacies to laboratories, and not transferred to the retail price paid by the NHS and patients, reveals that it is urgent to reform the structure (and not only the details of calculation) of the reference price so that price competition moves to the bill paid by the NHS. Impose a ceiling on the percentage discount on the billing from the laboratory to the pharmacy is difficult to enforce when the incentives for such practices remain intact. On the other hand, is unjustified and may distort competition to set a ceiling on the lower discount rate for the same product when brand when a generic.
Taking as reference
the lowest price, rather than the average of the three lower prices, requires security of supply capacity at that price in order to prevent anti-competitive practices. A simple change in the calculation of the reference price will alter the level in the right direction but not sufficient, by itself, to change the incentives of the laboratories.

In other countries, lower prices of generics are achieved by liberalizing the price of generics with universal mandatory substitution by lower-priced product on the market automatically updated, either generic or brand (except where the patient prefer to pay the price difference; copayment avoidable).

The English system continues to focus on the hyper-regulation instead of price liberalization when there is competition, flee from preventable copayment for no reason beyond political panic "co" and more than a reference price system is a exclusion system of public funding based on the maximum price.

Given the asymmetry of information, it is difficult to imagine how the controller may be hit with an appropriate division of the unilaterally imposed price reductions for each generic, bringing it down to marginal cost without distorting competition. Keep in mind that the real marginal cost would not have anything to do with either the retail price or the current reference price.

The RDL 4 / 2010 of March 26 has chosen to impose a reduction in the wholesale price of drugs subject to reference pricing system that can reach 30%: the reduction is higher for products whose current difference between reference price and the RRP + VAT is lower. For example, a drug that has a RRP + VAT today as the reference price has a reduced price of 30% industrial, and other medications that now have an RRP + VAT 25% or more below the current reference price does not suffer cut one in industrial prices. From a static perspective (today), "this measure contributes to efficiency (the price closer to marginal cost? I think it's highly doubtful that even from the static point of view this division of the price reduction will contribute to closer to marginal cost.

The explanation is quite simple: there are drugs that have long been under the effect of generic competition and under the reference price system whose reference price may have already reached the production costs, as well , these will be imposed a price cut of no more than 30%! In contrast, other drugs only recently that the system is applied reference price and for which there are few generic, in this case to a drug with a lower VAT PVP + 25% over the reference price is not the price cuts, although you can still find very away from the cost of production. It is quite clear that the difficulty of driving prices to the efficient level through more and more regulation rather than deregulation once and for all the generics market is an illusion that distorts price competition. By

unilateral price cuts applied once the proposal in the agreements of March 18 for generics (and reflected in the RDL 4 / 2010 of March 26), can help mitigate but no garantíasde to eliminate the risk that in the near future or remain or reappear immediately large discounts to pharmacies or other equivalent forms of this practice.

From the dynamic point of view, "these measures favor price acercacimiento efficient price? Again, the answer is rather negative. This is a price cut now tax once it leaves intact the substantive dynamic problem: the effects of strong price competition between laboratories industrial PVP move the NHS and paid users. This cut price point allowing the PVP will not be reduced to the extent that industrial prices do for those drugs that are still run down until the cost of production.

Having opted for the imposition of limits on discounts to pharmacies no objective reasons why it is different for brands and generics. However, experience indicates that this is a measure will only be effective to the extent that incentives disappear as competition takes the form of discounts, rebates or other facilities and other services.

Be careful to exclude from public funding drugs for minor symptoms that do not match a price: the result may be, if no precautions are taken, an increase public expenditure are being replaced by more expensive drugs funded by the NHS. This is indicated by the experience of other countries and the previous English experience.

Although the agreements have prevented Interregional Council again addressed the necessary revision of the inequitable and inefficient system of co-payments current drugs, further highlights a very positive and the commitment to take into account the cost per life year gained to deciding which services should be in the future: better prices only those innovations that lead to a major increase in efficiency and lower cost per life-year gained.

Removing A 2010 Rear Lamp On A Vw Golf

PRIORITY PERFORMANCE AND NOT PAY MORE FOR THE SAME (Comments to agreements Interterritorial Council of 18 March 2010)

(This article has published on March 24, 2010 in The Economist, p. 6)

still have fairly good health outcomes although the level of public spending and investment per person in the English health system is more than 10% lower than be for us according to our level of income and demographics. It

remarkable political consensus achieved by the recent agreements on the quality and sustainability of the Inter-Territorial Council of the National Health System. The signal has value as an example for other government spending programs.

The agreement reached by the Inter-Territorial Council is positive and hopeful opens political agenda to be developed. However, the agreement is still partial and leaves out much of the real issues (incentives to encourage the integration of care and solving capacity indiscriminate adoption benefits regardless of cost, lack of financial responsibility of users, etc. .)

the list of measures included in the agreement as very positive highlights the commitment to take into account the cost per life year gained when deciding which services should be in the future: better prices only those innovations which involve a further increase efficiency and lower cost per life-year gained.

The agreement promises an airy drug savings of 1,500 million euros Annual public budget over 100 million savings for the city's pocket.

star measures to achieve these savings are threefold: first, set the reference price (the maximum amount paid by the NHS) by an unlicensed drug in the lowest, second, reduce by half the price 25% generic and, third, setting maximum prices for medicines for minor ailments excluding public funding that exceeds the (targeted funding).

Despite pointing in the right direction, there is every reason for skepticism about the real impact of the three measures.

What drives today pharmaceutical expenses are not prices medications many recipes but person. Reduce the price by decree is not the same as reducing spending.

The existence of large discounts on purchases of generic drugs to pharmacies engaged in laboratories, and not transferred to the retail price paid by the NHS and patients, reveals that it is urgent to reform the structure (and not only details of calculation) of the reference prices so that price competition is transferred to the invoice paid by the NHS. Taking as reference

lowest price guarantee required supply capacity at that price in order to prevent anti-competitive practices. In other countries, lower prices are achieved by liberalizing the price of generics with universal mandatory substitution by lower-priced product on the market automatically, either generic or brand (except if the patient prefers to pay the difference price; copayment avoidable). By

unilateral price cuts as proposed in the resolutions of March 18 for generics, is mitigated but not eliminated the risk that in the near future remain high discounts to pharmacies and the sale price generic public does not fall quickly to the price of production.

And fifth, we must be careful to exclude from public funding drugs for minor symptoms that do not match a price: the result may be, if no precautions are taken, an increase in public spending due to their replacement by more expensive drugs funded by the NHS.

is a pity that the Inter-Territorial Council has missed yet another opportunity to raise the need to seriously review the inequitable and inefficient system of current drug copayments.

Junoy Jaume Puig, Universitat Pompeu Fabra

Technischedaten Für Roland Mixer M24e

NOT PAY MORE FOR THE SAME OR PUNISH THE EFFICIENCY

(An excerpt of this text was published in the newspaper PUBLIC on 19/03/2010, page 27)

Public health expenditure in Spain is one of the few categories of public expenditure that are efficient (good results for the level of investment, which is still at least about 10% less than what we obtain in our level of income), education or infrastructure and even I + D have much lower levels of efficiency (more waste).

The population increase along with aging and the pace of technological innovation upward pressure on health spending is justified. Carry the weight of necessary and painful fiscal adjustment on health spending is wrong from the economic point of view. This is not an obstacle to improving the efficiency of the NHS, but not at the level of public spending! Strong health budgets specialization of the CCAA is what leads the current government line of trying to steal more money where instead of reducing inefficient and unnecessary spending.

public pharmaceutical expenditure accounts for more than a fifth of total health expenditure. Here also the temptation to steal where there is more money through unilateral cuts would be wrong price from the economic point of view for several reasons.

First, what is driving spending are not drug prices but the number of prescriptions per person, while the average price per prescription is stalled or downwards, the number of prescriptions continues to rise without the aging serve as an alibi. We must act on the quantity and not on price.

Second, unlike what happened a few years ago, the weight of new and expensive drugs on expenditure on medicines dispensed in pharmacies has been greatly reduced due to fewer innovations and their transfer to the hospital budgets. The proper and efficient would be to establish measures to prioritize funding and provide better prices to only those innovations that lead to a major increase in efficiency and greater cost-effectiveness (cost per year of life saved!).

Third, the existence of large discounts on purchases of generic drugs to pharmacies engaged in laboratories and not transferred to the retail price paid by the NHS and patients, reveals that it is urgent to reform the system called reference prices applied to drugs whose patent has expired so that price competition is transferred to the invoice paid by the NHS.

And fourth, the current co-payment system needs to be reformed or not to raise more to pay more than the user but make it more equitable (today it pay 40% of lone parents with very low income with children charge while giving pensioners free open bar for high income and / or wealth) and more efficient (the number of prescriptions increased by about 25% the day that is granted free of drugs by becoming a pensioner), the status of pensioner to provide access to free no sense (there is no reason why a voluntary early retirement should mean more expenditure on pharmaceuticals!).

financial sustainability problems of the NHS has more to do with a chronic infrapresupuestación, with the approval of government budgets that managers know a priori that they are unrealistic, with the indiscriminate adoption of medical innovations and farmnacológicas regardless of their contribution improving health and its cost-effectiveness, the absence of incentives for public health organizations and professionals, with the lack of fiscal responsibility of the CCAA and the lack of financial responsibility of the users.

Independent evaluations of the impact of the current reference pricing system for days to come and emphasizing that the system has been useful to reduce prices but not the expense. Spending on drugs subject to reference prices has not been reduced since the price reductions have been many times more than offset by the increase in the number of prescriptions per person. Prices have fallen, but not the way you should have done if he had encouraged price competition among laboratories.

Today this competition is manifested more in the form of discounts to pharmacies that lowered the retail price paid by the NHS and patients. The economic evidence indicates that it is more efficient the liberalization of prices of medicines whose patents have expired NHS combined with actions designed to cover only the lowest-priced drugs: this can be achieved by funding only the price of cheaper equivalent drug (being by the patient the difference if you prefer an equivalent but more expensive)-substitution by cheaper at any moment, or by conducting competitive auction for the award of preferred drug status (he who pays the NHS) as they have begun to do and several European countries.

For drugs whose patent has not expired, how efficient is the application of an identical level of funding for drugs to be different active ingredients are very similar therapeutic effect (reference prices with drug or therapeutic equivalence) as the difference price, if not choose the reference price, by the patient (copayment avoidable). It would also be appropriate copayments higher for drugs with a worse cost-effectiveness and more low or no cost to the most necessary and effective would be a much more efficient than the current system, combined with exclusions for low income individuals (regardless of your age!).

Gaybetween Dad And Son

ALTERNATIVES TO PATENT MEDICINES PHARMACEUTICAL SPENDING

Article published in HUMANITAS ONLINE No 48 March 2010
http://www.fundacionmhm.org/revista.html

Promoting research and innovation has traditionally used different instruments. Patents are one of these instruments and, perhaps, the most widespread, but not unique.

instruments for the promotion of innovation used in many economies throughout history have been:
1. Public funding of research. The national funding of medical research of basic nature are a good example of this instrument.
2. AWARDS AND PURCHASE OF PATENTS. For example, in 1714, after a maritime accident caused the death of 2,000 sailors on the coast of England, the British government established a reward of ₤ 20,000 for the invention of a method for determining longitude at sea. This award led to the development of the chronometer.
3. PATENTS, such as those that currently protect the new drugs in many countries.

Any patent creates a legal monopoly, the laboratory ensures innovator the exclusive right to use and sell the innovation for a fixed period of years. During the period of validity of the patent nobody else can make and sell the product protected by patent, unless to do so with your permission. Thus, it is during this period of protection of the jurisdiction conferred upon the patent for which the laboratory must recover fixed and sunk costs relating to expenditure on innovation and development (R & D) of the product. Once you have completed this period of protection obtained legally through the patent, any competitor can copy and produce the same drug, so it is possible that the innovator faces then a large number of competitors and the costs of market entry have virtually disappeared (open access to information on innovation).

However, being necessary and essential to encourage pharmaceutical innovation, patents, despite its large size and outreach, policy is far from perfect from the standpoint of social welfare.

An alternative to patents as an instrument to support research is the public funding of research through institutions like the National Institutes of Health U.S. or the Instituto de Salud Carlos III in Spain.

Put yourself in the Instead of a private company that managed to find the information needed to produce a new active substance. If the use of this information there is no possibility of exclusion (no other use could prevent the information at no cost to bring to market new active ingredient) and no rivalry in use (anyone can use the same information), you never have invested in getting the discovery.

Since the private sector will not invest for innovations that after discovered immediately become public property, a policy to encourage the development of such innovations is to make the public sector finances R & D.

How efficient is public funding and policy to promote innovation? The public sector has difficulty in selecting research projects with greater social and motivate researchers to direct their efforts towards the development of viable projects.

Until the first half of the nineteenth century, the awards were widely used as an alternative to patents and public funding to create incentives for innovation. For example, when Napoleon was faced with the need to find a new way to deliver food to his troops established a prize or reward that led to the development of tins. During the first half of the nineteenth century, when rewards or awards patents and share the territory of the incentives for innovation, we can find a very interesting example that combines both systems through the purchase of a patent: the case of the daguerreotype.

The incentives for the development of new vaccines, especially against malaria, tuberculosis and AIDS, offers a useful example for discussion on alternatives to patents. The reality seems to indicate that in the case of some diseases like the above patents have not been enough to get incentives, at least for several years, research in keeping with the high social and economic costs malaria, tuberculosis and HIV / AIDS.

Private research in vaccines such as those that could be developed against these diseases is limited not only by the poverty of potential customers, but also by the inability of innovators to obtain appropriate the value of the benefits that produce vaccines.

addition, governments use the purchasing power, regulation and intellectual property rights to maintain low prices for vaccines. Several governments are striving to reduce the price of vaccines and limit intellectual property rights applied to vaccines by producing or importing generic drugs. This strategy is useful in ensuring that the high prices associated with patents fall but discourages investment in R & D and delays the discovery of new vaccines.

If private investment and patents are insufficient to encourage discovery of new vaccines that affect a large number of people living in poverty and if we are to avoid the inefficiency associated with public research, what can you do to promote these innovations?

Michael Kremer (professor of economics at Harvard University) has released the initial proposal of commitments to purchase a certain quantity of vaccine at a price. The idea is simple in theory and based on the creation market incentives, although probably more difficult to implement in practice.

The government (or a private foundation) may make public a commitment to purchase a certain amount of a vaccine to a certain price, in the event that it was invented. The commitment could take the form of a contract (number of vaccines and price per person immunized, not per dose of vaccine) through which prospective adopting a commitment to purchase an innovative future to develop a vaccine that meets a set of requirements (eg approval by the Food and Drug Administration-FDA-American and a minimum efficiency of 80%). The buyer could vaccine available to less developed countries in exchange for a small co-related with income level.

research programs funded by the public sector may be suitable for basic research, but more applied stages of research, called Kremer and by pull programs "are more appropriate. These provide researchers and pharmaceutical companies strong incentives to self-select projects that are reasonably likely to be able to develop a useful product, and to focus on the development of a vaccine or medicine feasible instead to pursue other objectives. Finally, Pull programs "designed properly can help ensure that if new products are developed, they reach those most in need.

To purchase commitments that encourage innovation, potential producers should be confident that the sponsor will not try to renegotiate the agreement once it has developed the desired product and has incurred sunk costs. The courts consider that such liabilities are legal contracts that are enforceable. Assuming proper legal wording, the determinant of credibility will be more eligibility criteria and prices that financial funds are physically placed in separate accounts. The credibility of the purchase commitment can be increased by specifying the criteria for who is eligible (eligibility) and pricing of vaccines in advance and isolating those who must interpret the criteria of political influence.