In pharmaceuticals, the challenges with using the patent system are increasing. As Huber has pointed out, the nature of molecular medicine is changing. The system of rigid, blind clinical trials needs to be replaced by a regime of focused trials in which researchers learn and adapt as they go. Medical research may be valuable without producing a brand new molecule that cures a disease and thereby justifies a patent. It may instead focus on determining which combination of drugs will best treat a certain class of patients. A prize-grant would reward this sort of targeted research in a way that a patent cannot.
Professor:
Surprisingly, you leave out a public choice analysis of your proposal. Assuming that a government agency is a funding institution, a research organization would spend quite a lot on the rent-seeking activity of having the funding institution issue a prize-grant contract that conformed to the research organization’s expected research outcome because the research is already partially complete. The governmental funding organization would likewise want to report “success” in its programs, so would have every reason to select likely successes — i.e. ones where research organizations can privately signal that they expect outcomes because them have part of the research in hand. Effectively lobbying would make the effect of a prize-grant approach more like that of a pure grant approach over time.
To put it into an impressionistic story, big research firms would have K Street lobbyists taking the director of research funding to seminars to be apprised of the state of challenging research. The seminar features a steak and lobster dinner. The challenging research just happens to be research where the research organization has done some advance work, entirely in the public’s interest. Also attending the seminar would be a woman who lost her child to the terrible disease that the research can help address. When the research results in a prize, the research company hosts a press event, where they fulsomely thank the support given by the funding organization; the same woman gets up and tearfully thanks the invaluable personal support of its director. A few years later, that director has taken a job with the research organization because of his deep knowledge of the research in the field, but his day-to-day duties primarily involve managing communications with his successor.
Some of this can be addressed through procedures, such as advance publication of proposed contract terms for comment before opening them for bidding, use of external advisory boards, prohibitions on revolving doors, and regular replacement of the personnel selecting the research to be contracted.
But your proposal seems much less prone to this problem with private philanthropic organizations.
Max