Monday, June 25, 2012

Just a Tribute

The Orphan Drug Act of 1983 subsidizes development of pharmaceutical treatments for rare diseases. The Controlled Substances Act of 1970 regulates or bans the manufacture, importation, possession, sale and consumption of certain classes of drugs. According to a lazy Wikipedia search, the Food and Drug Administration regulates as much as a quarter of US GDP.

The FDA Review, part of the Independent Institute has much better analysis on FDA activities than I am able to produce here, so if you're at all interested in a good source on the economics of drug regulation, I encourage you to spend some time looking it over. In breve, the efficacy requirement bars many potentially useful medications from arriving on the market and the length of the approval process means that many patients suffer or perish before having an opportunity to try a potentially life-saving treatment. Justice medicine delayed is justice recovery denied.

Given that drugs are so heavily regulated, and that the regular bro in the street agrees that the FDA is a good organization (this is an anecdotal claim; I'm more than willing to accept harder empirical evidence to the contrary), though perhaps in need of some reform, it's worth asking to what extent the market for drugs is euvoluntary. To do so, let's look at two distinct markets: licit and illicit and let's consider the three major partitions of the commerce: production, distribution, and consumption. More below the fold.
Case 1: Medical-Grade Pharmaceuticals

Phase A (Development and Production):
The FDA requires two criteria be met before drugs hit the shelves: efficacy and safety. This is sort of akin to the UCC's implied warranties of fitness of purpose and merchantability. It seems reasonable that drugs shouldn't harm patients and that companies shouldn't hawk snake oil, and because of substantial information asymmetries, some third-party verification of drug quality using rigorous trials and good experimental controls seems wise. I am not especially convinced that the status quo is the ideal arrangement, but I again point you to the link above for more. I have a hunch that regret aversion drives most folks' support for most of the FDA's functions: prescription drug mishaps inevitably lead to calls for more oversight, better regulation and claims that the FDA is asleep at the wheel. Drug development isn't euvoluntary because it's life and death for patients pitted against quarterly earnings statements for Pfizer and Merck. BATNA disparity plus regret avoidance.

Phase B (Distribution):
Specialized knowledge and training are the stock in trade of medical professionals. Doctors, nurses, pharmacists et al know how certain drugs interact, so it's in the interests of patients to ensure that pill cocktails aren't dispensed by any ol' Joe hillbilly wandering around in his long johns. Tort Law is meant to reduce BATNA disparity, but when weighing the cost of incompetence-driven mortality against a civil suit, I have a hunch that ordinary folk find the courts to brew a weak tea.

Phase C (Consumption): Did you know that in addition to drug-resistant strains of tuberculosis, new strains of drug-resistant bubonic plague could be around the corner? How weird is it that non-compliance with courses of treatment actually is a valid public health crisis, yet to the best of my knowledge, there are no serious proposals to create a regulatory body to address this problem. In the case of antibiotics, there is a humongous uncompensated externality problem with compliance.

Verdict: Prescription drugs don't seem to be euvoluntary, though the degree to which existing interventions bring the market closer to euvoluntary is ambiguous.

Case 2: Recreational Drugs

Phase A (Production)
I worked for a season in Death Valley as a line cook (Furnace Creek, 49er Cafe). The nearest town where you could do some shopping or get anything even remotely approximating Chinese food was Pahrump, NV. You may remember Pahrump from Tim Burton's 1996 classic film Mars Attacks. What I typically remember about Pahrump is cresting the hill leading into town upon which I could see the rooftop of each and every single-family detached home in the whole valley all at once and almost never fewer than four plumes of smoke on any given visit rising thanks to some bozo's home meth lab bursting into flames. I will refrain from going into detail on the horrors of modern Mexican marijuana production and transportation, because this is a family-friendly blog. Thanks to a lack of standard production technique, product quality can be highly variant and customers have no means to redress complaints with the manufacturer (except with local boutique operations, though these sorts of producers don't enjoy the benefits of scale production). I forward the proposition that interventions brought on by the War on Drugs has rendered the market for recreational drugs less euvoluntary that it would be otherwise.

Phase B (Distribution)
Without access to the open-order rule of law that other markets enjoy, drug distribution networks rely on particularly vicious enforcement mechanisms. If, like during the height of the crack violence of the late 80s, everyone is playing Hawk (Hawk-Dove game), blood runs freely in the streets. This seldom happens in currency forward markets. Without a decent rule of law protecting customers and especially in those markets for highly addictive substances like junk or meth, participating can hardly be considered euvoluntary and again, it's probably less so than without the intervention that legislates the business underground.

Phase C (Consumption)
Here's how I understand the argument for prohibition:

  1. Recreational drugs serve no pharmacological purpose and may cause physiological, psychological or social harm to users.
  2. These drugs are addictive so users may be unable to stop consuming through their own volition.
  3. Think of the children.
  4. Banning these substances makes it harder for people to consume them.
  5. Therefore, make any part of the market illegal.
It's to protect the consumers! Drug users are not sovereign individuals capable of deciding what they should or should not ingest. Part of the reason I find this argument unconvincing is that it makes no mention of relative prices or of the benefits of drug use (from what I hear, they can be quite fun; Bill Hicks and Hunter Thompson among others used to extol the virtues of LSD consumption, for example). Still, a majority of respondents to the GSS believe that the government is: "Dealing with drug addiction : too little" (62%). This is even after the massive intervention brought to us by our good friends in the DEA, the Coast Guard, the National Guard and the Central Intelligence Agency (though the latter could plausibly be said to be net producers rather than net interdictors of narcotics). So again, I think the relevant question is if the War on Drugs makes illicit drug use more or less euvoluntary. Having to hide use from cops and being under the constant threat of incarceration makes the answer rather plain to me: drug prohibition makes use much less euvoluntary, but perhaps I'm missing something.

I am leaving off the questions for discussion portion of this post. In my experience, students have no trouble leading a discussion of drugs all on their own. All you have to do is open the floor and the hands start rocketing upwards like Alan Shepard on Apollo 14.

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Do you have suggestions on where we could find more examples of this phenomenon?