Go Big or Go Home: A Free and Perfectly Safe but Only Partially Effective Vaccine Can Make Everyone Worse Off
20 Pages Posted: 23 Jan 2018 Last revised: 15 Aug 2018
Vaccines are crucial to curb infectious-disease epidemics. Indeed, one of the highest priorities of the National Institutes of Health (NIH) on the HIV front is the development and delivery of a vaccine that is at least moderately effective. However, risk compensation could undermine the ability of partially-effective vaccines to curb epidemics: Since vaccines reduce the cost of risky interactions, vaccinated agents may optimally choose to engage in more of them and, as a result, may increase everyone’s infection probability. We show that—in contrast to the prediction of standard economic epidemiological models—things can be worse than that: A free and perfectly safe but only partially effective vaccine can reduce everyone’s welfare, and hence fail to satisfy—in a strong sense—the fundamental principle of “first, do no harm.” The key force in the mechanism that we uncover is that, when agents strategically choose their partners—as opposed to matching at random, as assumed in the standard models—there are strategic complementarities in risky interactions. This implies that a small intervention can lead to a relatively large change in the interaction structure that overwhelms its obvious direct effects, and suggests that the NIH might want to go big—i.e. deliver a highly-effective vaccine—or go home.
Keywords: imperfect vaccines, welfare, strategic network formation, risk compensation, strategic complementarities, externalities
JEL Classification: C72, D85, I18
Suggested Citation: Suggested Citation