Government Funding Policy Towards Communicable Diseases |
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| Authors: | Na Hao Gervan Fearon |
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| Institution: | (1) Department of Economics, York University, 4700 Keele Street, Toronto, ON, M3J 1 L3, Canada;(2) Department of Economics, Atkinson Faculty of Liberal and Professional Studies, York University, 4700 Keele Street, Toronto, ON, M3J 1L3, Canada |
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| Abstract: | The paper investigates the choice of government to offer a grant to a potential entrant aimed at reducing its fixed cost of
entry when a monopoly firm provides the needed pharmaceutical drug given the prevalence path of the disease in a dynamic economic
framework. The results of present study suggest that government can use a grant to credibly threaten the entry of a new firm
into the industry and to promote limit-output pricing by the incumbent firm. The paper therefore suggests that the government
policy set includes subsidizing the potential entry of a new firm into an industry manufacturing pharmaceutical drugs for
the treatment of a communicable disease. Clearly, foreign aid could also be used as a source of this credible threat. The
study also extends the paper by Mechoulan (2007) through the introduction of the government’s choice into the model.
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| Keywords: | Communicable diseases Prevalence Monopolist Price for treatment Government funding |
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