ABSTRACT
In this chapter, we describe biotechnology as the sector that addresses recurring problems of resistance such as those that occur in the pharmaceutical and agricultural industries. The sector may be conceived of as the research and development layer of a three-tiered industry that makes the fundamental determination regarding the allocation of biological resources between stabilization and production objectives. We examine the capacity for decentralized, patent-based incentive mechanisms to result in socially optimal outcomes in the biotechnology industry. We demonstrate a fundamental incompatibility between the dynamics of the patent system and the dynamics of the resistance problem. The patent-based incentive mechanisms are incapable of sustaining society against a background of increasing resistance problems. In addition, the externalities within a patent-based system indicate that decentralized mechanisms will result in systematic underinvestment in the stabilization objective.
