Investigating Commercial Incentives for Innovation: An Application in Traditional Medicine

Abstract

Innovation in traditional medicine is not easily compatible with standard measures, such as patents and clinical trials. Especially, in the current context of COVID-19, there is a renewed interest in alternative cures from traditional medicine. While the ‘historical capital’ associated with traditional medicine systems like Ayurveda creates a ready market for medicinal formulations, possibilities of innovation remain uncaptured. Within the space of traditional medicines, Ayurveda has, in recent years, resulted in a plethora of medicines: both proprietary formulations as well as ‘pill-ized’ versions of standard classical herbs. We conduct a detailed investigation of this issue using a two-pronged strategy. First is a qualitative investigation through a primary survey of Ayurveda practitioners based in Delhi and Kerala in 2018, using the snowball sampling technique, to understand what innovation should mean for Ayurvedic pharmacopeia. Second is our quantitative analysis using the hedonic method, which checks for commercial incentives reflected in retail prices of Ayurvedic formulations, which incorporate varying degrees of innovation. We find the existence of commercial profit-making incentives, and that innovation in Ayurveda is synonymous with improvements in utility for patients by making medicines more palatable and travel friendly. We conduct robustness checks by contrasting the results from our parametric specification with a non-parametric chi-square automatic interaction detector (CHAID) analysis. However, we do not find scientific evidence supporting the discovery and efficacy of these medicines. Public investments in efficacy standards that strengthen the linkages between research and commercial drug discovery are necessary to infuse innovation in the large pharmacopoeia of traditional medicine systems like Ayurveda. JEL Classifications: D40, L790, I110, O31