Optimal Vaccine Subsidies for Endemic and Epidemic Diseases

93 Pages Posted: 17 Nov 2020

See all articles by Matthew Goodkin-Gold

Matthew Goodkin-Gold

Harvard University

Michael Kremer

Harvard University - Department of Economics; Brookings Institution; National Bureau of Economic Research (NBER); Center for Global Development; Harvard University - Harvard Kennedy School (HKS)

Christopher M. Snyder

Dartmouth College - Department of Economics; National Bureau of Economic Research

Heidi L. Williams

MIT Department of Economics; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: November 16, 2020

Abstract

Vaccines exert a positive externality, reducing spread of disease from the consumer to others, providing a rationale for subsidies. We study how optimal subsidies vary with disease characteristics by integrating a standard epidemiological model into a vaccine market with rational economic agents. In the steady-state equilibrium for an endemic disease, across market structures ranging from competition to monopoly, the marginal externality and optimal subsidy are non-monotonic in disease infectiousness, peaking for diseases that spread quickly but not so quickly as to drive all consumers to become vaccinated.

Motivated by the Covid-19 pandemic, we adapt the analysis to study a vaccine campaign introduced at a point in time against an emerging epidemic. While the nonmonotonic pattern of the optimal subsidy persists, new findings emerge. Universal vaccination with a perfectly effective vaccine becomes a viable firm strategy: the marginal consumer is still willing to pay since those infected before vaccine rollout remain a source of transmission. We derive a simple condition under which vaccination exhibits increasing social returns, providing an argument for concentrating a capacity-constrained campaign in few regions. We discuss a variety of extensions and calibrations of the results to vaccines and other mitigation measures targeting existing diseases.

JEL Classification: D4, I18, L11, L65, O31

Suggested Citation

Goodkin-Gold, Matthew and Kremer, Michael R. and Snyder, Christopher M. and Williams, Heidi L., Optimal Vaccine Subsidies for Endemic and Epidemic Diseases (November 16, 2020). University of Chicago, Becker Friedman Institute for Economics Working Paper No. 2020-162, Available at SSRN: https://ssrn.com/abstract=3731611 or http://dx.doi.org/10.2139/ssrn.3731611

Matthew Goodkin-Gold

Harvard University

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Michael R. Kremer (Contact Author)

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