Licenses for Medicine in Ecuador

In 2009 Ecuador’s government overrode hundreds of patents from foreign pharmaceuticals in order to produce medicine domestically, with the justification that the national medicine (generic medicine) would be sold at a lower price. However, in order to produce the medicines, medical laboratories required a license from the government. Obtaining these permits have multiple limitations, and there are currently very few companies that have acquired it. 

The license implementation has induced a social cost in different ways. First, given that the market opportunity is so big, there are high rent seeking intentions. The returns from producing medicine are far greater than the opportunity cost of using the inputs elsewhere. The rent seeking expenditures are not only a transfer of wealth from the potential producers of medicine to the government to obtain the license; but also includes the cost of the inefficient use of resources, the goods will be better produced in terms of cost and quality by foreign companies. Although the generic medicine is sold at a lower price than import goods, this price is probably a lot higher than what it would be under a competitive market. Therefore, there is a dead weight loss in addition to the previously mentioned cost. Both of these social costs are what Tullock refers to as the social cost of monopolistic behavior. Even though this is not a monopoly because there is more than one firm, the industry has the same characteristics because of high barriers to entry. 

Moreover, these licenses have also created costs of unemployment from people who used to work in foreign pharmaceuticals, as most have reduced their size or shut down in the last five years. Finally, something that is not always seen through a political perspective involves the quality and availability of the medicine. There are many medications that can no longer be found in Ecuador, and there are big concerns from doctors in regards to the quality that these medicines have. This is the result of a lack of technological resources and expertise from the Ecuadorian producing laboratories, which in turn increases the effects of the misuse of resources that these licenses have formed.

The ones who have been affected from these decisions, and are paying for the costs are society, not only their money is being wasted but their health is also affected.