ale

i, STANFORD UNIVERSITY MEDICAL CENTER
STANFORD, CALIFORNIA 94305 e (415) 321-1200

July 24, 1973

 

STANFORD UNIVERSITY SCHOOL OF MEDICINE
Department of Genetics

Dr. Oskar Morgenstern
Department of Economics
Princeton University
Princeton, New Jersey 08540

Dear Dr. Morgenstern,
This is in further reply to your letter of 6 [2

I was very much interested to read your 13 points. The most
creative writing in any science, it seems to me, is that which
exposes very clearly the fundamental unsolved problems. Yet one so
rarely sees this and instead one is likely to be immersed in continual
confusion as writers seek to evade rather than expose the fundamental
difficulties. In many writings one may see a footnote that the
economist has only certain variables under control or at his disposal.
Yet when policy recommendations are being formulated and defended it
is precisely these political constraints that need to be headlined.

I find myself in something of a dilemma in contrasting the
critical outlook of your 13 points with your implied suggestion that
conventional economic arguments might be persuasive with Dr. Shultz.

It seems to me there is a profound connection between the insufficiency
of economic theory as you have criticized it and the policy errors

that are being made with respect to federal support of the development
of new knowledge and technology. I have looked for and read every cost
benefit analysis of research that I could find, and I am gravely uneasy
about each one of them with respect to the crudity of the approximations
that enter on both the cost and benefit side. For an example, I enclose
a copy of an article by Weisbrod, 1971, which claims to be a unique
economic analysis of a case history in medical research. I do not think
it really adds very much to the briefer and admittedly more superficial
cases that are included in the FASEB report that I sent you.

The absurdity of Weisbrod's argument can be epitomized by his
setting a value of $1350 per case of poliomyelitis prevented: -- an
assessment of economic value that might appear to be a parody of
economic analysis. I am not sure that I can suggest any practical
alternative for empirical measurement of the marginal value of prevention
per case. I am not very happy with efforts to date which attempt to
relate marginal values to actuarial stakes, as I am sure these are not
nearly as linear as our simple theory would demand. (Or to put it a
little differently, that the risk/aversion aspects include more than
the stake, freedom from worry, from the cost of seeking further
information, from the cost of anticipating future bargaining and other
externalities). It is notable that Weisbrod can make a very good case for
a substantial rate of return on investment even with this ludicrous

LT. J. P. KENNEDY, JR. LABORATORIES FOR MOLECULAR MEDICINE, DEDICATED TO RESEARCH IN MENTAL RETARDATION

MOLECULAR BIOLOGY HEREDITY NEUROBIOLOGY DEVELOPMENTAL MEDICINE
Dr. Oskar Morgenstern -2- 7/24/73

evaluation on disease prevention. On the other hand, to study the
marginal cost of research on polio is not very useful for trying to
build a case for the overall support of health research! A comparison
of the marginal costs, and commensurate benefits on some uniform basis,
would of course be a reasonable first order strategy for deciding upon
alternative areas of research investment which is a rather different
question, I believe, than you intend to bring to Dr. Shultz' attention.

So many discussions about the "value of life" seem to be infected
with inappropriate normative considerations, but I am left rather
astonished that economists generally do not adopt an approach consistent
with other areas -- what is the consumer willing to pay for the product?
Mishan in his paper in the Journal of Political Economy,July, 1971,

Vol. 79:687-705, “Evaluation of Life and Limb: A Theoretical Approach”.
What I wanted to say is that Mishan in that article has done a much
better job of examining different theoretical formulations of evaluating
life and health. -

But of course the whole matter becomes now much more a question of
politics than of economics, broadly considered.

Anyone working in experimental biology will tell you how impossible
it is to segregate expenditures that should be allocated as the marginal
cost of doing polio research. These, in fact, are a small part of the
total effort that was necessary to reach a successful conclusion. And
of course the converse is also true, as Weisbrod himself points out with
respect to Watson having been supported by a polio fellowship. (I well
remember Luria's exasperation when Watson totally disregarded all of the
formalities with respect to changing the laboratory in which he wanted to
work -- some of this is recounted in Watson's book.)

The different elements of cost and of benefit are also thoroughly
interdigitated that I d@spair of taking anything other than an institutional
approach to the examination of the policies of support of research. We
will either be the kind of country in which research, technology, and
economic growth based on these inputs will be able to flourish or we will not.
For many, many basic research projects the real value to the national
economy will be their role in education, in sharpening the minds of
researchers, teachers and students than in the direct flow of benefits
from the actual knowledges obtained. That is to say the process far outweighs
the product in terms of its social value. What is the value of the key-
stone of an arch?

All of the above notwithstanding, I am happy to give you whatever
support I can in your mission vis-a-vis Dr. Shultz, and I hope you will
tell me if there is anything more that I can add.

It may be particular important to know just what questions Dr. Shultz
has on his mind for himself as he reviews the policies in question. If you
can give me any feedback on this point, perhaps my own responses in the
future might be more intelligently directed.

Sincerely yours,

mo So, Joshua Lederberg

Enclosures Professor of Genetics