The Optimal Timing of Compulsory Licensing: A Story of Thailand's Winter of Discontent

Abstract

This paper considers the timing of issuing a compulsory license on pharmaceuticals. Apart from confirming the role of basic public health concerns--such as the virulence and prevalence of the disease to be addressed--in compulsory licensing, the paper identifies key economic variables of direct concern to a revenue-maximizing government with the power to issue the license. The paper finds that a disease that threatens to reduce domestic tax revenues is likely to be met with a move toward generic manufacturing of patented drugs. A compulsory license is less likely to be issued if retaliation by trade partners endangers the domestic export sector or if foreign trade contributes significantly to government finances. Thailand’s 2006 compulsory license issue is discussed as an example supporting the implications derived from the model.