An Economic Model for Bioprospecting Contracts

Abstract

This paper explores the use of a micro-economic model aiming at the analysis of bioprospecting contracts’ provisions and parties. It focuses the attention on the pharmaceutical industry as the representative biodiversity buyer, presenting an original theoretical framework that explains the main contract characteristics or stylized facts. Against this background, it takes account the main contractors involved in these private contracts, i.e. biodiversity sellers and biodiversity buyers, analyzing both the magnitude and distribution of the respective payoffs. Furthermore, particular attention is given to the impact of bioprospecting contracts, and patenting, on social welfare. All in all, the impacts of bioprospecting contracts and patenting on social welfare are mixed. This is because the positive welfare impacts, associated with the potential discovery of a new drug product, productivity gains, nonmonetary benefit sharing or transfers and royalty revenues, are to be balanced with the negative welfare impact resulting from the legal creation of a monopoly and the related well-known effect on the consumer surplus. Finally, the potential redistribution effects are limited and a potential enforcement of this objective may jeopardize the desirability of the contract since this action will bring a significant increase in the contracts administration costs.