Economics of Antibiotics Resistance

Ramanan Laxminarayan discusses "A Matter of Life and Death: The Economics of Antibiotic Resistance," in the Third Quarter 2012 issue of the always-interesting Milken Institute Review. (The magazine is freely available, with registration, on-line.) Not only is the topic of considerable importance, but for teachers of introductory economics, it offers a nontraditional example of a shared natural resource--and the risk of a tragedy of the commons.

The problem arises, paradoxically, because antibiotics are such a miraculous medical invention that they are heavily and broadly prescribed, even for relatively minor conditions like bronchitis or ear infections, and even for virus-caused conditions like flu where antibiotics don't even work. When antibiotics are so widely used, bacteria mutate in response and build up resistance.

"In the United States, for example, resistance to the bacterium methicillin-resistant Staphylococcus aureus (MRSA), has reached 60 percent. This means six out of 10 patients with this virulent staph infection can no longer be treated with oxacillin, a relatively low cost drug. But what still amounts to a cost problem in rich countries is becoming a serious threat to public health in the developing world: lower-income countries face a growing toll of death and morbidity from curable infections because the generally available antibiotics no longer work."

The problems only start with infections that are resistant. Without antibiotics, almost every form of surgery lead to additional and potentially severe infections.

One obvious answer is to invent new antibiotics, but it has gotten more difficult and costly to do so. "[O]minously, the pace of development is slowing: 14 of the 16 classes of antibiotics in use
were introduced before 1970. Accordingly, options for treating patients who do not respond to older, less effective antibiotics are shrinking. ... Fortunately, there seems to be a glimmer at the end of this tunnel. Two new antibiotic drug classes have been introduced during the past decade, ending a 40-year drought. Moreover, the pharmaceutical industry seems to be returning to antibiotic development, especially for soft-tissue skin infections ..."

Another issue is that the U.S. health care financing system reimburses the costs of antibiotics. However, it does not reimburse--at least not in a direct way--for alternative ways of reducing the spread of infection. One study found that Medicare alone spent $20 billion on addressing costs of hospital-caused infections in 2004. But except for some pilot programs, the health care system is readier to pay for costs of fighting infection than for costs of preventing its spread in the first place. "The market for antibiotics may fail to produce economically efficient outcomes for other
reasons – notably underinvestment in other means of infection control like vaccinations
and good hospital management practices."

Laxminarayan does a nice job of talking through the possible solutions: encouraging development of additional antibiotics, encouraging a range of antibiotics, discouraging overuse of antibiotics when not especially necessary, and encouraging alternative ways of fighting infection. Here, I'd just emphasize the author's point that for teachers of economics, antibiotics resistance offers an example of a shared natural resource. 

Many natural resources--like fisheries or forests or clean air--share the trait that if they are used in moderation, they have an ability to renew themselves and to continue. However, if they are overused, the resource can be depleted in a way that it has great difficulty in recovering. Moreover, as the "tragedy of the commons" scenario points out, every individual has an incentive to overuse a common resource, because the gains of using that resource all flow to the individual, while the social costs of overusing the resource are shared across society. This is the economic basis for arguing that natural resources need to be managed in some way: perhaps through private property rights like ownership or marketable quotas, or perhaps through more direct regulation of use, to prevent their overuse and depletion.

The effectiveness of antibiotics fits this scenario. Each doctor and patient has an individual incentive to use a wide spectrum of antibiotics to treat any given condition. The benefits to the patient are immediate, while the potential costs of creating greater resistance to antibiotics are shared across society. The effectiveness of antibiotics is an extraordinarily important social resource, but it is being eroded by overuse. Exactly how to prevent overuse of this resource is debatable, but the need to take steps to do so is clear.