Optimal Vaccine Subsidies for Endemic and Epidemic Diseases

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.Motivated 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.

Supply chains create global benefits from improved vaccine accessibility

“…And Supplementary Figs. [16][17][18][19] show the distribution of the three types of benefits and the distribution of total benefit, respectively.…”

“…From the opposite side, vaccination decisions in one country may be beneficial to the economic recovery of other countries, which is often referred to as one type of externality of vaccination [14][15][16][17] . The presence of these externalities is a major driver that makes a marketoriented global vaccine distribution a socially non-optimal solution 18,19 . Advancing our understanding of the positive health and economic externalities is the key to maximize the socioeconomic gains of global vaccine rollout 14,16,18,20 .…”

“…The presence of these externalities is a major driver that makes a marketoriented global vaccine distribution a socially non-optimal solution 18,19 . Advancing our understanding of the positive health and economic externalities is the key to maximize the socioeconomic gains of global vaccine rollout 14,16,18,20 .…”

Modeling Behavior during a Pandemic: Using HIV as an Historical Analogy

“…Ahuja et al (2021) find that if the policy objective is to accelerate vaccine delivery, buyers should directly fund manufacturing capacity and thus shoulder most of the risk of failure, while preserving some direct incentives for speed. Goodkin-Gold et al (2020) solve for the optimal vaccine subsidy by integrating a vaccine market with rational agents into a standard epidemiological model. They find that the optimal subsidy is non-monotonic in disease infectiousness, peaking for diseases that spread quickly but not so quickly to drive universal vaccination.…”

Integrated epi-econ assessment of vaccination

“…Auld and Toxvaerd (2021) document that the roll-out of Covid-19 vaccines coincided with fewer infections and more social activity, which is consistent with our model. Goodkin-Gold et al. (2020) show, in an analytically tractable setting, that the vaccine externality is non-monotonic in the reproduction rate of the disease.…”