From the Harvard Law Review – Volume 4, Issue 2
This article provides a game theory and law-and-management analysis of for- profit pharmaceutical public-private partnerships, a complex type of legal arrangement in the highly regulated pharmaceutical industry. A pharmaceutical public-private partnership (PPPP) agreement is a legally binding contract be- tween a private pharmaceutical enterprise and a public research university (or a private university conducting publicly funded research) to support research leading to new commercial pharmaceutical and biologic products. The key purpose of this article is to provide a theoretical explanation and a practical perspective on how properly crafted PPPP arrangements can promote innovation more efficiently than traditional self-optimizing contracts. In particular, a properly framed binding contract, coupled with respect for positive incentives, can move the parties away from an inefficient prisoners’ dilemma Nash equilibrium to the Pareto Optimal Frontier and thereby increase both the overall size of the pie and the value of the share retained by each participant. To deliver an efficient framework for collaboration, the PPPP contract must include mechanisms for encouraging cooperative behavior, leading to a win-win approach rather than a traditional competitive perspective. Thus, this article discusses how the PPPP contract should encourage the parties to collaborate with a strong focus on attaining common goals by sharing gains or losses and information, and by instituting risk and reward systems to build and share innovation. When coupled with appropriate attention to the difficult task of coordinating the actions of interdependent actors, a PPPP arrangement can enhance the likelihood of successful commercialization of pharmacological discoveries by flipping the par- ties’ incentives as compared with a more traditional contract.
Full article found here