Working Paper: NBER ID: w28085
Authors: Matthew Goodkingold; Michael Kremer; Christopher M. Snyder; Heidi L. Williams
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.\nMotivated 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.
Keywords: Vaccine Subsidies; Epidemic Diseases; Public Health Policy; Economic Analysis
JEL Codes: D4; I18; L11; L65; O31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Vaccine subsidies (H20) | Positive externality of vaccines (D62) |
| Positive externality of vaccines (D62) | Reduction in disease spread (I14) |
| Basic reproductive ratio (R0) (C59) | Optimal subsidy (H21) |
| Optimal subsidy (H21) | Vaccine market effectiveness (I11) |
| R0 values < 1 (C59) | No vaccine market (L17) |
| Very high R0 values (C59) | Limited social benefit from vaccination (J32) |
| Concentrating resources in specific regions (R12) | More effective vaccination (I19) |
| Universal vaccination in the short run (I19) | Positive willingness to pay for vaccine (D69) |
| Optimal vaccine subsidies (H23) | Effectively address serious diseases (I12) |
| Monopolistic market conditions (D42) | Higher minimum subsidy (H23) |