Pharmaceutical Industry - Assignment Example

Economic for Managers Contents Answer 3 Answer 2 4 Answer 3 7 Pharmaceutical Industry 7 Energy Industry 8 Alternative mechanism 8 Answer 4 9 Answer5 11 References 14 Answer 1 Precautionary principle is a precautionary approach stating that in case any policy or action has the potential to cause harm to the environment or the community, the burden of proof for the action or policy to be non-harmful falls on the implementer of these policies or actions, if a scientific consensus of the policy or action being harmful is not present. This article deals with the role of precautionary policy in decision making and is attempted at evaluating why precautionary policy is not the right policy to be implemented for decision making related to policy formulation. The article takes into account and discusses the various fallacies associated with precautionary policy. The author has presented his opinion regarding why the precautionary principle cannot be established as a full-fledged principle that can be used for decision making with respect to policies related to environmental safety and health of the public. It is argued that the precautionary policy is not sufficient by itself for being used as a basis of decision making (Sunstein, 2005, pp.1-12). The precautionary principle contradicts the main principles of rationality as compared to the cost versus benefits principle. However, the precautionary principle can be used as a part of the epistemic basis on which decision making can be carried out (Raffensperger and Tickner, 1999, p.220). The author has given suitable examples of how the application of precautionary principle can create risks as contradictory to the expected impacts of the policy. The author has also discussed how the use of regulations based on the precautionary policies can lead to creation of risks in place of lessening the risks. According to the author, the regulatory policies developed by talking into account the precautionary principle may increase the level of risks and uncertainty in the global trading and financial markets instead of lowering the risks and uncertainties as expected from the application of the precautionary principle. The author also discusses that the formulation of a regulatory policy cannot be done based only in the precautionary principle. According to the author, it is necessary to evaluate the costs versus benefits associated with an action as well as to evaluate the potential risks and uncertainties that are likely to emerge by the incorporation of that particular action. A tradeoff between the costs, benefits and risks must be achieved in order to understand the potential threats and benefits of the action. Also, suitable tradeoffs between present risks and potential risks should be considered. The concept of the precautionary principle cannot be identified as a solution to measure and prevent the possible uncertainties and risks. Instead it is found as an incomplete measure for assisting in decision making processes related to policy formulation and decision taking for the preventive and corrective actions. Often, the precautionary principle is applied on a selective basis by considering the most immediate and high potential risks and ignoring the less immediate and less intensity risks. It is not possible to evaluate and decide a stringent level of risk as permitted in practical application. There often lays a question related to what the level of permissibility of risk is and how it is to be decided. For example, in drug testing, it cannot be decided what level of pre marketing experiments and tests would be sufficient to gauge the positive as well as the negative effects of the medical drug on the health of the human beings. Therefore, the precautionary principle cannot alone be sufficient to act as the underlying basis for the formulation of policies or for decision making with respect to what will be the initial and preventive actions related to a product, process or technology. Any innovation or new action must be evaluated with the help of other parameters like the associated costs, benefits, risks as well as the uncertainties. Answer 2 The precautionary principle was proposed at the United Nations Conference in Rio de Janerio in the year 1992. The principle was proposed as a part of the Declaration on Environment and Development and stated that for protecting the environment, this principle will be widely implemented by the States through the use of their available capabilities. The precautionary policy encompasses the policy that in case there are threats of irreversible or serious harms to the environment or the health of the public, cost effective measures should be taken immediately even if there is a lack of scientific establishment and certainty related to the damages. The aim of the precautionary principle is to protect the environment and the community by applying the policy of being safe rather than being sorry. It is a kind of preventive policy. There are two main forms of precautionary policy which are the string precautionary principle and the weak precautionary principle. The strong version of the precautionary principle implies that the costs for preventive and corrective actions will not be considered while taking necessary preventions for environmental harm and that even the minimum level of environmental damage by a product or an industry would not be acceptable. The principle also states that even if the potential economic and social benefits form a particular product, process or industry are considered to be high, no environmental damage risks would be considered to be acceptable by the policies. The strong version of the precautionary principle includes a mechanism which is used to make the people advocating these actions accountable for any damage of risks associated with the environment (O’Riordan and Cameron, 2001, p.144). The weak version of the precautionary principle suggests that there should be a certain level of evidence that can be used to establish that there is a likelihood of environmental damage to be caused by certain actions related to product, process or industry. Unlike the strong version of the precautionary principle, the weak version takes into consideration the associated costs for taking preventive measures. Also, the costs versus benefits of the actions are taken into account before applying the principle. The burden of proof for proving that the actions are not likely to have harmful effects lies with the people who are advocating the initial as well as the precautionary actions. Also unlike the strong version of precautionary principle, liability is not assigned only to the people who are advocating the preventive actions. Apart from the scientific uncertainties, the economic considerations relevant to the actions are also taken into consideration. The precautionary principle acts as a policy framework used to address the potential risks and threats associated with ignorance and uncertainty. One major application of the precautionary principle is in the arena of climate changes (Harding and Fisher, 1999, p.56). The precautionary principle was devised originally as a medium of responding to the constraints existing in science and policy making which make the policies insufficient to add5res the uncertainties and complex risks and the dire consequences caused to the environment and human health. In the core of the precautionary principle there exists a lack of certainty with respect to establishing the cause and effect relationships from the perspectives of environmental harm. But establishing a cause and effect relationship involves a wide number of parameters like the existence of chances of irreversibility of the potential damages, the economic costs associated with preventive measures, the economic costs associated with refraining from taking preventive measures and the establishment of scientific proofs of uncertainty and risks. Answer 3 Pharmaceutical Industry The precautionary principles have found wide application in the pharmaceutical industry. However, there have been several positive and negative impacts of the implementation of precautionary principles in the pharmaceutical industry. The pharmaceutical industry is characterized by major decisions which are affected by different forms of uncertainty. The decision making process is affected by uncertainties which are increased by the complexity of the necessary procedures for taking decisions in the pharmaceutical industry. The precautionary principle is implemented in the pharmaceutical industry through the use of the fact of well found suspicion which considers the social type of uncertainty in this industry (Tickner, 2000, p.512). This uncertainty prevailing in the pharmaceutical industry is the connection between the observed negative reactions caused by the administration of the drugs and the actual effects that the drugs cause. The precautionary principle is often criticized for the inhibitory role that it assumes in the field if research and innovation in the pharmaceutical world because it hinders the innovation and development of new products in this industry. The precautionary principle is aimed to avoid the risk associated with the innovation and use of drugs. However, the pharmaceutical industry is largely dependent on the innovations and experiments in order to formulate new drugs with extensive meditational value. The precautionary principle used in the formulation of regulatory polices related to environment and health are often criticized because they constrain the growth and innovation of new products in the pharmaceutical industry which may stop the invention of breakthrough inventions of life saving and other significant drugs. Energy Industry The precautionary principle is often cited with respect to the clean energy initiatives. But clean energy can be expected to have lesser economic validity. The clean energy options are perceived to be associated with high expenses and low benefits with respect to the viability of using clean energy by following the precautionary principle. The precautionary principle is expected to have lesser impotence in its application in the energy sector because the precautionary principle is used to boost the popularity of clean energy so that minimum negative impacts are caused on the environment. However, due to the high expenses associated with clean energy, most buyers who are cost conscious would opt for the conventional modes of energy in order to save their expenses. Therefore, the implementation of the precautionary principle as the base for policy making related to environmental safety and health of the public seems redundant because it is very difficult to create a balance between the environmental sustainability and economic growth of an industry. Alternative mechanism To ensure that both the economic growth and environmental sustainability is achieved by an industry, it is important to evaluate the costs and benefits associated with the sector. A cost-benefit analysis helps to measure the benefits of the actions with respect to the expenses incurred in the functioning and introduction of the action (Sadeler, 2007, p.124). The evaluation of risks associated with the actions and launch of new products and innovations can be identified as an important alternative mechanism that can be used in place of the precautionary principle. Answer 4 According to economic theories, the principle of perfect completion or pure competition is used to describe a market in which no particular participant in the market has such a large market power as to set the price of a product alone in the market. This is applicable to homogeneous products. A principle of perfect competition can exist when the following criteria are met with respect to the structure of the market. All the firms should sell identical products, all the firms should be price takers i.e. they should not be able to control the selling price of their products, the industry has the features of freedom of entry and freedom of exit, the firms have comparatively small market shares and the consumers have complete information related to the product that is being sold and the prices that are being charged by each of the firms. A perfect competition market is a myth which is impossible to exist in the real world. However, the precautionary principle can be applicable to a certain extent when a perfectly competitive market exists and when all the criteria with respect to a perfectly competitive market are fulfilled. The precautionary principle may or may not co-exist with the perfect competition prevailing in a market (Peterson, 2006, pp.595-601). The application of precautionary principles in the perfect competition market may lead to more control of the regulatory authorities on the market in case all the criteria for perfectly competitive market including that the same information is accessed by all the entities in the market are met with. In case, all the firms in the market have the same information about the market, they would have lesser control over the power control and price decisions in the market. As such, better control can be authorized by the regulators which would ensure that the risks associated with the market are lessened to the highest possible extent. The precautionary principle does not play a constructive role in helping individuals, nations or governments to take decisions by using a non-arbitrary method. It is not always possible to implement the precautionary principle by assuming that a perfectly competitive market exists. Answer 5 The precautionary principle is incorporated in the environmental policy to call upon the government from imposing the regulatory measures on the basis of the minimum potential for environmental hazard or harm. The supporters of precautionary principle assume that the economic growth and development of a nation are themselves posed as threats to environmental protection and public health (Graham and Hsia, 2002, p.150). But in spite of this theory, the growth of the industrial society has created an explosion of health and wealth of the human population which has been unseen before in human civilization. It is identified by the criticizers of precautionary principle that it does not take a proper stand with respect to its support of the regulations and non-regulatory policies. Instead, the justification behind the use of precautionary principle is not clear because the precautionary principle is not completed by itself. Also, some parts of both the strong and weak propositions of the precautionary principle are contradictory to each other and seem incomplete with its application in the present day society. The efforts made in the way of operationalizing the precautionary principles in public policy formulation have not borne the expected results. In fact there has been many contradictions and confusions arising in the process of using this principle as the efforts to implement this policy through the regulatory public polices often result in competing concerns and act as an ideological crusade similar to the Trojan horse effect. When the precautionary principle is applied selectively to the conducts and technologies which are politically not favoured, the principle often assumes the role of a barrier in the economic growth and technical development of a nation (Peterson, 2007, pp.305-308). The application of precautionary policies in uncertain situations related to environmental and health risks can be perceived as a sound policy. But a broad application of precautionary principle as the base of policy formulation is not much acceptable because of the threats associated with it like the undermining of the goal that the proponents of the precautionary policy claims to advance. As such, the precautionary principle can act in a paralyzing manner instead of facilitating proper regulatory policy formulation. The regulatory reforms after the financial crisis of 2008 were formulated with the aim of preventing similar financial downturns in the future. The reforms following the global financial crisis of 2008 implemented many operational and structural changes in the financial markets. A number of regulatory reforms have been implemented to negate the effects of the global financial crisis as well as to take preventive actions so that a crisis of equal magnitude does bot occur in the future. The boundaries of the capital markets, financial institutions and the insurance markets are blurred due to the financial innovations done in these markets with respect to policy formulation. These innovations have created complications in the existing design of the proper regulatory requirements. The launch of new and complex regulatory reforms based on preventive and corrective actions have made the regulatory arrangements much complex. Significant uncertainties have arisen over the theoretical paradigms used in the markets to identify the need for regulation and to formulate the style of required regulations. The breach of the regulatory reforms has been identified as a major source of problem that may create harmful consequences for the institutions as well as the financial markets. The development of uncertainties indicates that precautionary policy may not be suitable to ensure that the health and environment hazards are controlled. The main weaknesses identified by the global financial crisis were the absence of adequate governance practices, remuneration practices and accountability practices, a high level of leverage and risk talking by the financial institutions, lack in the public information levels with respect to the distribution of risk in the financial markets, the growth of unregulated banking sector and development of complex financial systems and instruments and uncontrolled and non-recognized liquidity creation in the financial markets. The regulatory reforms have been formulated after the global financial crisis to remove these shortcomings prevailing in the financial markets and ensure that the level of risk taking and uncertainty is lower in the financial and capital markets. References Graham, J. & Hsia, S. 2002. Europe’s Precautionary Principle: Promise and Pitfalls. Journal of Risk Research. Vol. 5(4), p. 380. Harding, R. & Fisher, E. C. 1999. Perspectives on the Precautionary Principle. Leichhardt: Federation Press. O’Riordan, T. & Cameron, J. 2001. Interpreting the Precautionary Principle. New Jersey: Earthscan Publishers. Peterson, M. 2006. The precautionary principle is incoherent. Risk Anal. Vol. 26(1), pp. 595–601. Peterson, M. 2007. The precautionary principle should not be used as a basis of decision making. Science and Society. Vol. 8(4), pp.305-308. Raffensperger, C. & Tickner, J. 1999. Protecting Public Health and the Environment: Implementing the Precautionary Principle. Washington: Island Press. Sadeler, N. 2007. Implementing the Precautionary Principle: Approaches from the Nordic Countries, EU and USA. New Jersey: Earthcsan. Sunstein, C. R. 2005. The Precautionary Principle as a Basis for Decision Making. The Economists Voice. Vol. 2(2), pp.1-12. Tickner, J. 2000. Precaution in practice: A framework for implementing the precautionary principle. Working paper prepared for the Department of Work Environment. Lowell: University of Massachusetts. Read More