Consumption Externality and Yield Uncertainty in the Influenza Vaccine Supply Chain: Interventions in Demand and Supply Sides

Management Science, 58(6), 1072-1091, doi: 10.1287/mnsc.1110.1469

Posted: 2 Jun 2010 Last revised: 31 Jul 2020

See all articles by Kenan Arifoglu

Kenan Arifoglu

University College London - School of Management

Sarang Deo

Indian School of Business (ISB), Hyderabad - Operations Management

Seyed Iravani

Northwestern University - Department of Industrial Engineering and Management Sciences

Date Written: February 28, 2012

Abstract

We study the impact of yield uncertainty (supply side) and self-interested consumers (demand side) on the inefficiency in the influenza vaccine supply chain. Previous economic studies, focusing on demand side, find that the equilibrium demand is always less than the socially optimal demand since self-interested individuals do not internalize the social benefit of protecting others via reduced infectiousness (positive externality). In contrast, we show that the equilibrium demand can be greater than the socially optimal demand after accounting for the limited supply due to yield uncertainty and manufacturer's incentives. The main driver for this result is a second (negative) externality: self-interested individuals ignore that vaccinating people with high infection costs is more beneficial for the society when supply is limited. We show that the extent of the negative externality can be reduced through more efficient and less uncertain allocation mechanisms. In order to investigate the relative effectiveness of government interventions on supply and demand sides under various demand and supply characteristics, we construct two partially centralized scenarios, where the social planner (government) intervenes either on the demand side or the supply side but not both, and conduct an extensive numerical analysis.

Keywords: influenza vaccine, supply chain inefficiency, strategic consumer behavior, externality, yield uncertainty

Suggested Citation

Arifoglu, Kenan and Deo, Sarang and Iravani, Seyed, Consumption Externality and Yield Uncertainty in the Influenza Vaccine Supply Chain: Interventions in Demand and Supply Sides (February 28, 2012). Management Science, 58(6), 1072-1091, doi: 10.1287/mnsc.1110.1469, Available at SSRN: https://ssrn.com/abstract=1619406 or http://dx.doi.org/10.2139/ssrn.1619406

Kenan Arifoglu

University College London - School of Management ( email )

Level 38
One Canada Square
London, England E14 5AA
United Kingdom

Sarang Deo (Contact Author)

Indian School of Business (ISB), Hyderabad - Operations Management ( email )

India

HOME PAGE: http://www.isb.edu/faculty-research/faculty/directory/deo-sarang

Seyed Iravani

Northwestern University - Department of Industrial Engineering and Management Sciences ( email )

Evanston, IL 60208-3119
United States

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