Thread by @antonhowes

Inventors are in a race with the coronavirus. The faster they can develop vaccines or antivirals, or ramp up production of ventilators and testing kits, or come up with ways to reduce its social effects, the less deadly it will be.

So, how can we increase the rate of innovation?

Many governments simply pour more money into the problem. The European Commission allocated €164m to companies finding solutions, and the UK alone has poured £46m into vaccines and testing kits, as well as 500k to support people staying at home.

But there's more they can do.

In addition to direct funding, we can use prizes, to be awarded only in the case of success. @tylercowen, for example, has announced $1m innovative ways to support social distancing, and for written analyses of the virus.

But to find vaccines, it's more complicated and expensive

A prize for effective vaccines or antivirals needs to be in the billions to add more incentives for pharmaceutical companies. And we probably don't want it to take the form of a simple lump sum.

Instead, the model to follow here is probably the Advanced Market Commitment.

What we don't want is for a company to create a vaccine, and win the lump-sum prize, but then have little incentive to mass-produce it (cheaply).

The Advanced Market Commitment, first proposed by Nobel-prize-winning economist Michael Kremer, prevents this.

The idea is that instead of an up-front prize, pharma companies bid for long-term contracts to develop and then produce a vaccine, to be sold at a particular cheap price per dose. What the prize money is then used for, is to supplement the amount the companies receive per sale.

And it's already worked. Spectacularly. The Advanced Market Commitment was applied in 2007 to the creation of cheap pneumococcal vaccines for use in developing companies, with $1.5bn in prize money provided by five governments and the @gatesfoundation.

There are now 3 such vaccines, costing only $2 per dose, which have been administered to over 150m children, saving 700k lives.

Such a prize could make the covid vaccines that are already being developed affordable all over the world. Which is what we need.

But there's more.

For the most part, businesses have put their own financial resources into solving the crisis. There's plenty of demand, and patents give them a temporary monopoly to sell whatever they discover.

Yet there have been a few cases where patents have got in the way.

There was public outcry, for example, when 3D-printing companies in Italy were threatened with legal action for urgently producing parts of ventilators that the suppliers could not provide themselves. There was at least one similar case when it came to testing kits.

So while we want the patent system to continue to incentivise pharma companies - after all, we shouldn't throw the baby out with the bath water - we also don't want the downsides of monopolistic pricing.

That's where another potential policy comes in: the patent buyout.

Rather than a prize, the patent buyout involves the government purchasing a patent from its owners and making it open and available for the public to use - the kind of thing that was done in 1839 when the French government purchased Daguerre's patent for photography.

Releasing such key technologies to the public can have an extraordinary impact on creativity in an industry, while maintaining the best elements of the patent system. The only issue is with pricing, but economists like Kremer have come up with some ingenious solutions.

So, whether we choose to use funding, prizes, AMCs, or patent buyouts, now is the time to be bold with innovation policy.

Increasing innovation is, after all, a matter of life and death.

More detail on the policies here: tenentrepreneurs.org/blog/innovatio…

(Oops, that should be Advance Market Commitments, not Advanced. Wrote it right in the article and didn’t spot the autocorrects in the tweets)