Antimicrobial sensitivity—A natural resource to be protected by a Pigouvian tax

Since their discovery more than 70 years ago antibiotic drugs have been efficient tools for treating bacterial infections, and their use has reduced the number of fatalities and the suffering from bacterial diseases. However, the use of antibiotics may lead to resistance to the same or other antibiotics. The risk of resistance appears to be larger in veterinary medicine, since antibiotics have been given as feed-additives in animal production, the amounts given are larger, and the risk of selecting the wrong antibiotic is higher due to lack of diagnostic facilities. Historically, as resistance developed, new classes of antibiotics were developed, but today however, the flow of new substances has slowed. The resistance that arises from antibiotic use is a negative externality or a cost that is not included in the price of antibiotics since it affects the public good of antibiotic sensitivity. The negative externality implies that antibiotic consumption becomes too high. Antibiotic use can be restricted by e.g., prohibiting the use in animal feeding stuffs, prescription only use, or banning the use for animals or by using economic incentives, but restrictions on antibiotic use could have negative effects on the development of new antimicrobials since restrictions might reduce the profitability of such efforts to the pharmaceutical industry. It is therefore of interest to see what economic theory can contribute towards a solution. The objective of this study is to examine if a Pigouvian tax is an option for balancing the externalities and incentives for veterinary drug use. However, as a practical solution, it is suggested to use the costs of developing new antibiotics for determining the tax. The magnitude the tax based on European Union numbers ranges between 29 and 287€ per kilogram active substance or between 9 and 86% of the average price of commonly used antibiotics depending on the foreseen period in years (1-10 years) between the development of a new antibiotic drug. Hence, the sensitivity of bacteria to antibiotics should be managed as a finite natural resource. A tax based on the expected costs of development new antibiotic substances may offer a practical option for balancing the incentives and externalities of antibiotic use and development.