Posner makes some good arguments against foreign aid, but his implication that the U.S. should do nothing to make AIDS treatments available to backward countries is misleading. Much of the cost of the treatments is the R and D cost of designing the drugs rather than the marginal cost of additional doses. The patent buyout scheme proposed by Michael Kremer (see the book Entrepreneurial Economics) provides a way to significantly reduce those costs, while probably benefiting wealthy countries. A government or charity would buy many patents and put them in the public domain. The price would be set by auctions which would be kept honest by sometimes selling the patent to bidders instead of making the patent free. Ideally the price would be a bit higher than the private value of the patents, to reflect the fact that the social benefits exceed the value that the patentholder would get from enforcing the patent, resulting in improved incentives for drug development and in the drugs being available to people who can’t afford the patent holders’ prices. The most likely downside is the cost associated with using taxes to finance the buyouts (can someone show that private charity would be able to handle this?).
It is unclear whether the simpler approach of making exceptions to patent laws for backward countries would work well. It would depend on how hard it is to smuggle drugs from those countries to wealthy countries (which would harm the incentives to develop new drugs).