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Summary: Vaccine Market Coordination Using Subsidy
Hamed Mamani
Elodie Adida
Debabrata Dey§
December 28, 2011
Abstract
Prevention of infectious diseases is an important concern for managing public health. Al-
though vaccines are the most effective means for preventing infectious diseases, the existence of
a negative network externality often makes it difficult for vaccine coverage to reach a level that
is socially optimal. In this research, we consider how a subsidy program can induce a socially
optimal vaccine coverage. We consider an oligopoly market with identical vaccine producers and
derive a subsidy that leads to a socially efficient level of coverage. We also derive a tax-subsidy
combination that is revenue neutral, but achieves the same effect. Overall, our results provide
useful insights for governments and policy makers with respect to an important issue related to
public health.
Keywords: Vaccine coverage, network externality, negative network effect, vaccine effective-
ness, vaccine pricing, vaccine subsidy.
1 Introduction
The market for vaccines to prevent the spread of infectious diseases is a large one, both in the US
as well as globally, with a double digit growth rate. Global vaccine sales by major manufacturers
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