Pharmaceuticals as a market for “lemons”: Theory and practice

“Markets for ‘lemons,’ in which customers fall victim to a product or service with flaws, and sellers profit from not disclosing hidden risks or dangers, are a theoretically rich but unexplored domain for social scientists studying information asymmetry, where sellers know about flaws but buyers do not and can be exploited.”

This paper, written within an American context, has been published in the journal Social Science and Medicine and authored by Donald Light and Joel Lexchin. It focuses especially on pharmaceuticals (particularly those prescribed for mental healthcare), which are cast as the largest market for “lemons” in the world.

The paper’s abstract includes the following:

” … To illustrate, the paper characterizes pharmaceuticals as a multi-tier market of information asymmetry in which actors in each tier have substantial control over how much they disclose about hidden risks of harm. Such a market rewards the production and sale of ‘lemons.’ Current incentives and institutional practices reward developing a large number of barely therapeutically innovative drugs and ignoring their often hidden or understated harmful side effects. They reward designing and executing substandard, biased trials that mislead the FDA [the American Food and Drug Administration) and regulators abroad to approve new drugs without clear evidence of their degree of harm. Approved drugs are likely to be ‘lemons’ but promoted as ‘safe and effective.’ The result is substantial hospitalizations and deaths from adverse drug reactions.

A ‘risk proliferation syndrome’ of institutional practices maximizes sales, profits, and exposure to toxic side effects. An ‘inverse benefit law’ of marketing operates as companies try to maximize sales. The probability of benefits decreases but the chances of lemons adverse events do not. The details presented here deepen understanding of how markets for lemons thrive on information asymmetry, secrecy, and power …”

You can read the whole paper from here.

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