Working Paper: CEPR ID: DP15433
Authors: Michael Kremer; Heidi Williams; Christopher Snyder; Matthew Goodkingold
Abstract: Most economists would agree that the positive externalities caused by prevention ofinfectious disease create a prima facie case for subsidies. However, little is known about the appropriate magnitude of these subsidies, or about whether the level of such subsidies should vary across diseases. We integrate a standard epidemiological model with an economic model of consumer and producer behavior to address these questions. Across a continuum of market structures, we find that the equilibrium steady-state marginal externality is non-monotonic in disease transmissiblity, peaking when the disease is just transmissible enough to survive in steady-state. This pattern implies that marginal externalities—and, as we show, optimal subsidies—are higher for serious but rare diseases relative to diseases with lower individual burden but higher disease prevalence. Crude calibrations suggest that optimal subsidies for technologies such as vaccines, condoms, and mosquito nets, which prevent infectious diseases, may be very large relative to current levels.
Keywords: Vaccine; Epidemiology; Externality; Pharmaceutical
JEL Codes: O31; L11; I18; D42
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| marginal externality from vaccination is non-monotonic in disease transmissibility (D62) | equilibrium steady-state marginal externality peaks at a point where the disease is just transmissible enough to persist in the population (C62) |
| equilibrium steady-state marginal externality peaks at a point where the disease is just transmissible enough to persist in the population (C62) | marginal social benefit of vaccination is higher for serious but rare diseases compared to more prevalent diseases with lower individual burdens (I14) |
| marginal social benefit of vaccination is higher for serious but rare diseases compared to more prevalent diseases with lower individual burdens (I14) | optimal subsidies are higher for serious but rare diseases (H51) |
| optimal subsidies are higher for serious but rare diseases (H51) | substantial subsidies may be warranted for technologies preventing infectious diseases (O38) |