Many antibiotics that once were effective in eliminating infections no longer are because bacteria have evolved to become resistant to them. Some bacteria are now resistant to all but one or two existing antibiotics. Some policymakers have argued that pharmaceutical companies should receive subsidies for developing new antibiotics. A newspaper article states: While the notion of directly subsidizing drug companies may be politically unpopular in many quarters, proponents say it is necessary to bridge the gap between the high value that new antibiotics have for society and the low returns they provide to drug companies. Is there a positive externality in the production of antibiotics? Should firms producing every good where there is a gap between the value of the good to society and the profit to the firms making the good receive subsidies? Briefly explain.
Source: Andrew Pollack, "Antibiotics Research Subsidies Weighed by U.S.," New York Times, November 5, 2010.