We don’t have to do this because it is already done. No law need be passed for enough people to agree that if I sell you a poisoned apple and you die, your family has a claim on me. How much your family can get from me using public pressure against “that damn apple seller” is a question the market will solve. The better people communicate and the more connected they are, the more efficient will be the solution. My solution to the existence of government is better communication and more connections. I haven’t checked the rest of your site, so I don’t know if you already visit http://mises.org - a site about “Austrian Economics” which provides a solid philosophical basis for a free market.

Clearly it’s not already done when Merck is made liable for $250M for one old man. This is creating all the wrong incentives, as I hoped to explain. How will more communication make people less emotional and irrational when evaluating “little guy vs. faceless corporation” cases?

Yes, I’m on the mises mailing list. IMO it’s going down the tubes lately with constant government bashing and pro-anarchy stuff instead of good free market econ. I’ve been paying attention for at least 3 years, and it’s recent that the anarchy stuff is being pushed on mises instead of just lewrockwell.com. Same thing with the anti-war stuff. Okay Lew, we get it, you’re against the war, now let’s move on.

If the chances that the drug will kill the patient are pretty high, then the cost of the drug will be very high also - but there are rich people who will afford it, and productive people with good credit who will borrow the money for a chance at living longer. Patients could also agree to indemnify the drug maker against their own loss of life in order to get the drug for a lot less.

Don’t forget that no rational person will ever pay more than “49X” for the drug (given my assumptions about the relative value of the next 6 months of life). That constrains the drug company to a 98% failure rate or better.

I’m not clear on why this approach doesn’t also “[drastically reduce] the incentives to put out a beneficial drug” if lots of people start doing it. So I left that paragraph alone.

The arrangement is between the drug taker and a third party insurance company. The incentives to the drug company are unchanged because it’s still liable (still has to pay if the patient dies).

We don’t have to do this because it is already done. No law need be passed for enough people to agree that if I sell you a poisoned apple and you die, your family has a claim on me. How much your family can get from me using public pressure against “that damn apple seller” is a question the market will solve. The better people communicate and the more connected they are, the more efficient will be the solution. My solution to the existence of government is better communication and more connections. I haven’t checked the rest of your site, so I don’t know if you already visit http://mises.org - a site about “Austrian Economics” which provides a solid philosophical basis for a free market.

Anyway, I recognized the state of mind which produced all the paragraphs with math in them. My suggestion is to keep the math, but start with a paragraph that explains that the math can be skipped without getting lost by simply reading the sentences at the beginning of each paragraph. The paragraphs following it can initially assert the mathematical truths without using math and then use math to prove them:

A person can assume the drug is free in order to figure out whether or not they want to use it based on the chances that it will kill them. The drug would be beneficial for everyone that feels that getting back “the rest of their lives” is well worth the risk of losing just the next six months. (Then to the (1-P)*50X equation stuff)

Assuming the drug company has to pay the estates of patients who die, there’s a lower limit on the price they can charge to cover the cost of those claims. The more the pay to patients who die, the more people will be willing to use the drug. At the same time, this increased payout requires an increase in what they charge for the drug (to remain profitable). The company will do the math to find the most profitable price. (Then to the (1-P)*C - P*X equation stuff)

If the chances that the drug will kill the patient are pretty high, then the cost of the drug will be very high also - but there are rich people who will afford it, and productive people with good credit who will borrow the money for a chance at living longer. Patients could also agree to indemnify the drug maker against their own loss of life in order to get the drug for a lot less.

There’s no math in your next paragraph, so I left it alone…

Thing is, there is a serious moral hazard problem if everyone gets in the habit of telling the drug company that it isn’t liable for damages. If that happens, . A way around this is to allow consumers to sell their tort rights to a third party, probably an insurance company. The user can use the money from the sale to offset the cost of the drug, but the drug maker still maintains its liability (it simply pays someone else instead). Selling the tort rights for most real life situations (in which the probability of death is very low), will provide enough money to cover the bulk of the bill.

In this wild case, however, where the probability of death is very high, another scheme would be required (because the tort rights are only worth P*X and the bill may be as much as 49X). For this case, the user could make a deal with his insurance company like this: “If I live, you pay me the 49X I need to pay the bill. If I die, you get the liability payout.” So, to the insurance company the value of the deal is 0.98X-0.02*49X. That’s a break-even deal, so the user just needs to sweeten it a little so the insurance company can make a profit. The big difference between this approach and the simple sale of tort rights is that the insurance company only pays you if you live. With the simple sale of tort rights, the tort value ends up in your estate even if you die (which is most of the time in this example).

I’m not clear on why this approach doesn’t also “[drastically reduce] the incentives to put out a beneficial drug” if lots of people start doing it. So I left that paragraph alone.

Once the drug’s record is established, and “P” is accurately (and widely) known, things get a little more complicated. A consumer who actually knows the risks might make a different choice… It seems that the difference is that the consumer now has a cost to apply in his calculation, so I suggest:)

Knowing the cost of the drug, consumers will be a little less likely to use the drug and so the chances of survival will have to be a bit better in order for the drug to be worth taking. Interestingly, if the consumer placs no value on the money his estate gets if he dies, the cost of the drug does not affect the calculation of how much better the survival rate has to be. (Then on to the description of how to calculate the 86%.)

This assumes that the consumer places no value on the compensation paid to his estate if he dies. This seems like an extreme case. The other extreme is when the person does not apply any discount to money received after death (which is reasonably possible for someone with heirs), in which case the chances of his survival don’t figure into his calculation (just the payout to patients who die does). Such a patient will pay 49X regardless of the value of P. Note that the drug company still isn’t interested in that deal unless P