Working Paper: NBER ID: w28168
Authors: Michael Kremer; Jonathan D. Levin; Christopher M. Snyder
Abstract: Advance market commitments (AMCs) provide a mechanism to stimulate investment by suppliers of products to low-income countries. In an AMC, donors commit to a fund from which a specified subsidy is paid per unit purchased by low-income countries until the fund is exhausted, strengthening suppliers' incentives to invest in research, development, and capacity. Last decade saw the launch of a $1.5 billion pilot AMC to distribute pneumococcal vaccine to the developing world; in the current pandemic, variations on AMCs are being used to fund Covid-19 vaccines.\nThis paper undertakes the first formal analysis of AMCs. We construct a model in which an altruistic donor negotiates on behalf of a low-income country with a vaccine supplier after the supplier has sunk investments. We use this model to explain the logic of an AMC—as a solution to a hold-up problem—and to analyze alternative design features under various economic conditions (cost uncertainty, supplier competition). A key finding is that optimal AMC design differs markedly depending on where the product is in its development cycle.
Keywords: Advance Market Commitments; Vaccines; Public Health; Low-Income Countries
JEL Codes: D02; I18; O19; O31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| AMC design (Y20) | supplier capacity investment (G31) |
| AMC existence (C62) | level of R&D investment (O32) |
| product development stage (O32) | necessary subsidy size (H20) |
| product development stage (O32) | AMC design features (Y20) |