Applying the concept to health

Emma Walmsley writes:

[T]he world needs to be better prepared for global health threats. ... Antimicrobial resistance is just such a threat.... We risk returning to a time when a simple cut could have lethal consequences and common surgical procedures might be too risky to perform. ... The world needs commitment from pharmaceutical companies and new incentives to attract long-term R&D development. Antimicrobial resistance is the new battle for drug developers, Emma Walmsley, Financial Times (subscription), 14 July

Ms Walmsley goes on to talk about a UK pilot plan to test a subscription model for new antibiotics, and to say that 'exploration of other incentives, such as an intellectual property-based extension voucher, or changes to health technology assessment methods for valuing antibiotics ...are promising options.....'.

This is true, so far as it goes. The problem is that it appears that not enough resources are being allocated to dealing with anti microbial resistance (AMR). Ms Walmsley suggests ways of addressing this. But what's missing is the broader context, with which I believe that the Social Policy Bond concept applied to health could deal with more efficiently.

Whether we are looking at global or national health, we need to know whether putting funds into reducing AMR is the best use of society's scarce health resources. Perhaps funds would be better spent on preparing for epidemics or pandemics. The word better is the key: we need to know where our health pounds or dollars will generate the biggest improvements in health. More precisely, we need people to have incentives to find out this sort of information and, because circumstances, including our scientific knowledge, change rapidly, this has to be done on a continuous basis.

Governments have to make their resource allocation decisions on the basis of data that are necessarily incomplete. How can they know the effect that spending to oppose AMR will have on the overall health of the nation, as compared with allocating the same spending to preparing for epidemics? So, by default, health expenditure is influenced by groups of medical specialists with little incentive or capacity to see improvements in the general health of the nation as an objective. As a result, funding of health depends to a great and varying extent, on the strength of their lobby groups or on their public profile, rather than on what would best meet the needs of society.

The Social Policy Bond concept, applied to health, would change that. I have described how they would work in more detail here. Essentially, they would give a coalition of investors incentives to look for and exploit the most efficient approaches to dealing with society's long-term health problems - on a continuing basis. Health would be defined broadly, using some index of which one component could be Quality Adjusted Life Years. And the goal would be long term. The coalition of investors would be a new type of organisation; one whose structure and composition could change over time, but who could profit with the long (perhaps 50-year) lifetime of the bonds by buying bonds, doing whatever they can to advance toward the targeted goal, then selling their bonds at a higher price.


Especially with health, we need people and governments who can take a long-term view, and have incentives to do so.

Panoptics and experiments

Tim Harford writes: 

From steroids to social policy, what works and what doesn't is often surprising. That is why rigorous experiments in real-world settings are invaluable. The risk of harm and the greater good, Tim Harford, Financial Times (subscription), 27 June

Rigorous experiments are, as Mr Harford points out, more complicated and time consuming than just going with solutions that sound right, or seem obvious. With many of our goals requiring long-term research and experimentation, there are few incentives for people to do these things, and only a tenuous relationship between successful approaches and rewards. There are also few bodies of any kind that are motivated to take a panoptic view; looking, for instance, at efforts to reduce conflict worldwide, and adopt and adapt the more promising ones. There are some who do these things; charities, NGOs, United Nations agencies, perhaps. But they suffer from some or all of these deficiencies:

• they are poorly resourced
• they have their own agenda
• their rewards aren't correlated with their success at achieving meaningful outcomes.

This is not to say that these bodies aren't staffed by hard-working, well-meaning people. For the most part they are. But incentives matter. Take wars and civil wars: reducing such conflict is fine as a career option where job security and a steady income can give people a decent standard of living, regardless of what actually happens to the particular conflict within one's remit. But there is a glaring mismatch between the laudable efforts of these employees and the challenges that conflict, say, poses to human well-being. The potential for catastrophe requires that efforts be stepped up. More intellectual and financial resources are essential. We need the sort of brainpower that currently is devoted to lucrative but socially useless questionable activities such as high-frequency trading or advertising dog-food.

We need, therefore, a system that offers the possibility of worthwhile gain to people for whom that is a prime motivation. We need to channel their self-interest into solving our biggest problems. We need them to benefit from taking the panoptic view, investigating alternatives, conducting experiments, and implementing and refining potential solutions to our long-term social and environmental problems.

Social Policy Bonds would do this. A bond regime would address the three bullet points above. First, if there is more money to be made by solving our social problems, then  more resources will be devoted to that end. Second, the agenda of investors in Social Policy Bonds that would be redeemed only when explicitly and transparently defined goals such as reducing conflict' (or similar) are achieved, would be exactly the same as those of society. Third, there would be the opportunity to buy bonds when the prospects for achieving the targeted goal are gloomy, to do something to make the prospects brighter, and to sell the bonds at a higher price, even before the goal has actually been achieved. So we can target remote goals, such as the end of world conflict, and still have investors interested in achieving them.

Underlying the approach that investors in Social Policy Bonds would be motivated follow, and one that isn't being done frequently enough today, is to take that panoptic view, and conduct the sorts of experiments that Mr Harford writes about - and that are essential if we are going to come up with the diverse, adaptive solutions to our urgent, long-range, social and environmental problems.