The Economics Of Vaccines (Vaccines V Drugs) Flashcards
Main difference between vaccines and drugs
Time of consumption relative to realisation of disease
(Vaccine-administered before, when we know probability of contracting)
(Drug-administered after contracting- PRICE DISCRIM!)
Expected net surplus for vaccines
Probability of side effects from vaccine x harm from side effects
-
Price firm receives from vaccine
Profit maximising price of vaccine
Probability of side effects x harm from side effects
(So same as expected net surplus but without minusing the price received by firm- PM price removes the consumer surplus)
Drug expected net surplus
(prob of side effects x side effect harm)
- Price received by firm from drug
Drug profit maximising price
(prob of side effects x harm of side effects)
Same as expected net surplus without the minusing of the price of treatment.
Note: the 2 drug equations do not contain probability of contracting, since drugs are administered AFTER CONTRACTING…
If probability of contracting is < 1…
Price of drug treatment is greater than price of vaccines
What makes more revenue and why? (3)
Drug treatments
- Vaccines are administered before contraction, so no basis for discrimination among customers (drugs can discriminate for only infected)
- Marginal returns from vaccines consumption fall. I.e as. More people have vaccines, less effective, so people may not buy (free rider of positive externalities).
- Usually only 1 vaccination.
I.e people pay more for cure (drug) than prevention (vaccines)
Hence why pharmaceutical companies prefer to develop drugs rather than vaccines
Problem with vaccines production (3)
Cost (Millions of $)
Risk (delay investment till vaccine prospects are more certain e.g if new variants, or till aware vaccine successful)
Companies prefer producing drugs (price of drug treatment>price of vaccine) despite social benefit being better for vaccines.
Why is vaccine production risky
Investments worth it? Investment may be delayed until prospects are more certain
How to solve problem of vaccine production (3) and evaluation:
Gov intervention - Direct public funding of manufacturing facilities
Advances purchase agreements
COVID-19 Vaccine Global Access (COVAX) facility
Eval: private producers still set the price of vaccines.
Government intervention to solve problem of vaccine production
De-risk investment for vaccine manufacturers. (Transferred risk to public)
Gov intervention:
Direct public funding of manufacturing facilities (3)
Examples…
Build new factories
Expand supply of inputs e.g syringes
Distribution
Advanced purchased agreements and Eval: (3)
Government agrees to purchase a specified quantity at a specified price before production if standards met i.e % of effectiveness : Reduces risk of producer not finding a market and incentivises production.
Eval: relies on successfully producing the vaccine: low probability of success in early stage development (7% success) , so producer carries risk of wasted money in producing a vaccine not of standards
Countries would make these agreements with loads of producers in order to increase their chances of successful vaccines, resulted in hoarding of vaccines e.g Canada hoarded vaccines 600% over their populaion.
COVAX to solve problem of vaccine production
Resource pooling mechanism of over 180 countries to create equitable access to COVID vaccines.
COVAX objective and how did they achieve
Vaccinate up to 20% of people in participating countries by end of 2021.
No countries can receive more than 20% of its population until all countries have been offered vaccines for 20% of their population
