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Advance Market Commitment: Some Issues and a Remedy

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  • Patrick Leoni

Abstract

We argue that Advance Market Commitments, the most common mechanism to foster R & D in innovative treatments for neglected diseases, is inefficient in practice. We first show that currently used AMCs suffer from a severe Time Inconsistency problem, and that any rational pharmaceutical company should behave as if no such mechanism were available when deciding to start R & D for innovative treatments. We propose a mechanism that removes this inconsistency, which involves credible commitment. We then give the intuition why the optimal AMC with credible commitment leads to the lowest acceptable chance of having a successful medical innovations, given announced compensations. The question of finding the optimal mechanism to foster innovative treatments for neglected diseases is still open. JEL codes: I1, I3, G15

Suggested Citation

  • Patrick Leoni, 2019. "Advance Market Commitment: Some Issues and a Remedy," Revue d'économie politique, Dalloz, vol. 129(1), pages 1-9.
    • Handle: RePEc:cai:repdal:redp_291_0001
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    More about this item

    Keywords

    neglected diseases; incentive mechanisms; time inconsistency; optimal mechanism;
    All these keywords.

    JEL classification:

    • I1 - Health, Education, and Welfare - - Health
    • I3 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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