Advance Market Commitment: Some Issues and a Bad Remedy
Patrick L. Leoni
July 12, 2012
We carry out a strategic analysis of Advance Market Commitments, used in practice to foster R\&D in innovative treatments for neglected diseases. We first show that current AMCs suffer from a severe Time Inconsistency problem, and that a rational pharmaceutical company behaves in equilibrium as if no suchmechanism were available. We propose a mechanism that removes this inconsistency, and we describe its inherent problems. We then show that, when a realistic assumption holds, the optimal AMC with credible commitment always leads in equilibrium to the lowest acceptable chance of having a successful medical innovations,
given announced compensations.
Number of Pages in PDF File: 23
Keywords: neglected diseases, incentive mechanisms, time inconsistency, optimal mechanism
JEL Classification: I1, I3, G15working papers series
Date posted: July 12, 2012 ; Last revised: November 11, 2012
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