First-best health policy in vaccine markets with health and network externalities |
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Authors: | Rabah Amir Filomena Garcia Iryna Topolyan |
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Institution: | 1. Department of Economics, The University of Iowa, Iowa City, Iowa, USA;2. Economics Department, Poole College of Management, NC State University, Raleigh, North Carolina, USA
UECE, University of Lisbon, Lisbon, Portugal;3. Department of Economics, University of Cincinnati, Cincinnati, Ohio, USA |
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Abstract: | This paper considers an oligopolistic market for a vaccine, characterized by negative network effects, which stem from the free-riding behavior of individuals engaged in a vaccination game. Vaccine markets often suffer from three imperfections: high concentration, network effects, and a health externality (contagion). The first conclusion of the paper is that the negative network externality is important as a market distortion, as it may lead to significant welfare losses. The second and main part of the paper develops a two-part per-unit subsidy scheme that a social planner could use to target both consumers and producers of vaccines. The scope of such a subsidy scheme to induce the firms to produce the first-best output without network effects (which is the most ambitious first-best target) is investigated. In many cases, while the first-best is attainable, it requires negative prices for vaccines, which amounts to rewarding consumers to induce them to vaccinate. |
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Keywords: | health externality health policy negative network effects pandemics |
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