Designing Advance Market Commitments for New Vaccines / Michael Kremer, Jonathan D. Levin, Christopher M. Snyder.

Format:

Book

Author/Creator:

Kremer, Michael.

Contributor:

National Bureau of Economic Research.

Levin, Jonathan D.

Snyder, Christopher M.

Series:

Working Paper Series (National Bureau of Economic Research) no. w28168.

NBER working paper series no. w28168

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2020.

Summary:

Advance market commitments (AMCs) provide a mechanism to stimulate investment by suppliers of products to low-income countries. In an AMC, donors commit to a fund from which a specified subsidy is paid per unit purchased by low-income countries until the fund is exhausted, strengthening suppliers' incentives to invest in research, development, and capacity. Last decade saw the launch of a $1.5 billion pilot AMC to distribute pneumococcal vaccine to the developing world; in the current pandemic, variations on AMCs are being used to fund Covid-19 vaccines.

This paper undertakes the first formal analysis of AMCs. We construct a model in which an altruistic donor negotiates on behalf of a low-income country with a vaccine supplier after the supplier has sunk investments. We use this model to explain the logic of an AMC--as a solution to a hold-up problem--and to analyze alternative design features under various economic conditions (cost uncertainty, supplier competition). A key finding is that optimal AMC design differs markedly depending on where the product is in its development cycle.

Notes:

Print version record

December 2020.