Producing new pharmaceutical products – and then verifying their effectiveness and safety – is both expensive and risky. Substantial financial incentives are essential to induce firms to engage in this activity. The current patent system provides those incentives by empowering the firms that develop novel and nonobvious pharmaceutical products to prevent others from making, using, selling, or importing those products. Armed with that authority, the firms are able to sell the products for prices much higher than the costs of manufacturing them. The resultant profits provide the carrots necessary to prompt the firms to engage in the inventive activity in the first instance.

A prize system would work quite differently. Instead of authorizing drug developers to exclude competitors, the government would pay successful developers. Other firms, including generic drug manufacturers, would be free to make and sell the drugs in question. The resultant competition would keep drug prices close to the modest costs of manufacturing them. The money necessary to run such a system would come, not from consumers (or their insurers), but from taxpayers.

Would a prize system of this general sort be better than the patent system? More to the point, would it be more effective in alleviating the health crisis in the developing world? A substantial body of literature addresses those questions. In this paper, we marshal and critically evaluate that literature – and add to it a number of new arguments of our own.

The discussion is organized as follows. In Part I, we explore the major potential strengths and weaknesses of prize systems. In Part II, we consider how a prize system focused on the production of drugs and vaccines aimed at communicable diseases might be designed so as to capitalize on its strengths and mitigate its weaknesses.

Our analysis gives rise to an ethical problem: most of the legal reforms we consider would increase the already significant extent to which the cost of developing new drugs — including some whose principal function is to alleviate suffering in the developing world — is borne by the residents of the developed world, either as consumers purchasing patent-protected drugs or as taxpayers. Why should the law be organized in this fashion The goal of this Article is to answer that question.

The analysis proceeds in two stages. In Part I, we consider several possible reasons why developed country residents should help alleviate the health crisis in the developing world. We begin by canvassing, briefly, considerations from national self-interest. Finding these implausible and unattractive, we then consider several arguments grounded in considerations of justice, or in sentiments of mutual concern and well-wishing, that extend beyond national borders. These include arguments from historical equity, social utility, and deontological and teleological theories of distributive justice. We show that each of these frameworks or perspectives provides support for our proposals. Further, we contend that, not only do the arguments individually support our goals, but, suitably qualified, each tends to reinforce, or at least converge or “overlap” with, the others.

In the course of our analysis in Part I, we address several criticisms that have been or might be made of particular arguments we offer in support of our proposals. In Part II, we confront the following more sweeping objections to our approach: that full acceptance of the commitments we identify would impose intolerable moral burdens on the citizens of developed countries; that questions of distributive justice are properly limited to the level of individual polities; that recognition of the insights of communitarianism requires privileging the claims of the nation over the claims of the globe; that adoption of our proposals would disrupt the operation of the patent system and prevent us from achieving the important objectives it serves; and that interference with the free market in pharmaceutical products is either illegitimate or likely to do more harm than good. We contend that none of the objections, closely examined, holds up.