Jewish World Review July 19, 2000 / 16 Tamuz, 5760
http://www.jewishworldreview.com -- DURING THE PAST 50 YEARS, malaria, tuberculosis and HIV have killed several times as many people as have all wars. Five million people succumb to these diseases each year, mostly in developing countries. The breakdown: Malaria kills 1.1 million people annually, tuberculosis 1.9 million and AIDS 2.3 million. Each year, an additional 5.8 million people, 70 percent of whom are sub-Saharan Africans, are newly infected.
What options are there to halt this epidemic? Most might say more government-funded research is the answer. But Rachel Glennerster, a staff member at the International Monetary Fund, and Michael Kremer, a Harvard University economics professor, say no in their article "A Better Way to Spur Medical Research and Development" in the Summer 2000 Regulation magazine, a publication of the Washington, D.C.-based Cato Institute.
Government-funded research has a record of mixed results and quite a few spectacular disasters such as: the Carter administration's synthetic fuels program and the Clinch River Breeder Reactor. In 1980, the U.S. Agency for International Development (USAID) committed over $60 million to promote the development of a malaria vaccine. In 1984, USAID announced a "major breakthrough in the development of a vaccine against the most deadly form of malaria in human beings. The vaccine should be ready for use around the world ... within five years." Fifteen years later, the world's still waiting; The USAID program was a monumental failure.
Government-funded research produces the wrong incentives. Government-funded recipients have incentives to be overly optimistic; that's how they get the money. Government project directors have incentives to fund unpromising research, after all it's not their money. Recipients of government-funded research get paid before delivering a product. As such, they may be tempted to divert resources away from the contracted research toward activities that promote their personal careers, such as publishing professional articles.
Glennerster and Kremer recommend several alternatives to government-directed research of vaccines for AIDS, malaria and tuberculosis. A particularly fascinating alternative is to offer prizes for say a vaccine against AIDS.
Prizes for research have produced results. Napoleon needed better ways to feed his troops; he established a prize that led to the development of canning. In 1959, British industrialist Henry Kremer offered a 50,000 pound prize for the first substantial flight of a human-powered airplane. In 1977, Paul MacCready's Gossamer Condor won the prize. The next year, MacCready won a 100,000 pound prize by flying the Gossamer Albatross across the English Channel entirely under human power. More recently, several electric utilities established a $30 million prize for the most energy-efficient refrigerator. Whirlpool won with a line of refrigerators that were 70 percent more efficient than their competitors.
Why prizes for research? Prizes provide strong incentives. Unlike government-funded research, researchers get money only if their research succeeds. Glennerster and Kremer suggest that prizes might be the way to go in finding safe and effective vaccines for malaria, tuberculosis and AIDS.
They propose that once a vaccine is developed, philanthropic foundations or the government might play a role in its distribution to people in poverty-stricken nations. Patents might be bought out with lump-sum payments. Also, the government or a foundation might provide incentives by committing to the purchase of a certain quantity of the vaccine at a certain price.
Glennerster and Kremer have produced a brilliant proposal for ways to save millions of the world's poor. What makes their proposal an attractive alternative to government- funded research is that it pays attention to human incentives. With government-funded research, researchers get paid whether they deliver or not. In the case of prizes, no delivery, no prize.
One need not be a rocket scientist to figure out which method is more likely
to deliver the