The patent system typically takes credit for motivating biopharmaceutical innovation by making it profitable, while drug regulation gets blamed for burdening innovation with bureaucratic costs and delays. But FDA regulation in fact promotes profitability by prolonging exclusivity in product...

Richard Nelson's The Simple Economics of Basic Scientific Research (1959) and Kenneth Arrow's Economic Welfare and the Allocation of Resources for Invention (1962) presented the basic analytical tools still used to understand the patent system. Two subsequent changes--one primarily legal and the...