An Optimal Mechanism to Fund the Development of Vaccines Against Emerging Epidemics / Christopher M. Snyder, Kendall Hoyt, Dimitrios Gouglas.

Format:

Book

Author/Creator:

Snyder, Christopher M.

Contributor:

National Bureau of Economic Research.

Hoyt, Kendall.

Gouglas, Dimitrios.

Series:

Working Paper Series (National Bureau of Economic Research) no. w30619.

NBER working paper series no. w30619

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2022.

Summary:

We derive the optimal funding mechanism to incentivize development and production of vaccines against diseases with epidemic potential. In the model, suppliers' costs are private information and investments are noncontractible, precluding cost-reimbursement contracts, requiring fixed-price contracts conditioned on delivery of a successful product. The high failure risk for individual vaccines calls for incentivizing multiple entrants, accomplished by the optimal mechanism, a (w+1)-price reverse Vickrey auction with reserve. Our analysis determines the optimal number of entrants and required funding level. Based on a distribution of supplier costs estimated from survey data, we simulate the optimal mechanism's performance in scenarios ranging from a small outbreak, causing harm in the millions of dollars, to the Covid-19 pandemic, causing harm in the trillions. We assess which mechanism features contribute most to its optimality.

Notes:

Print version record

November 2022.