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Government Funding Policy Towards Communicable Diseases

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  • Na Hao
  • Gervan Fearon

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. Copyright International Atlantic Economic Society 2009

Suggested Citation

  • Na Hao & Gervan Fearon, 2009. "Government Funding Policy Towards Communicable Diseases," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 37(2), pages 121-134, June.
    • Handle: RePEc:kap:atlecj:v:37:y:2009:i:2:p:121-134
    DOI: 10.1007/s11293-009-9168-8
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    References listed on IDEAS

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    1. Mark Gersovitz & Jeffrey S. Hammer, 2004. "The Economical Control of Infectious Diseases," Economic Journal, Royal Economic Society, vol. 114(492), pages 1-27, January.
    2. Gersovitz, Mark & Hammer, Jeffrey S., 2005. "Tax/subsidy policies toward vector-borne infectious diseases," Journal of Public Economics, Elsevier, vol. 89(4), pages 647-674, April.
    3. Geoffard, Pierre-Yves & Philipson, Tomas, 1997. "Disease Eradication: Private versus Public Vaccination," American Economic Review, American Economic Association, vol. 87(1), pages 222-230, March.
    4. Mark Gersovitz & Jeffrey S. Hammer, 2003. "Infectious Diseases, Public Policy, and the Marriage of Economics and Epidemiology," The World Bank Research Observer, World Bank, vol. 18(2), pages 129-157.
    5. Kessing, Sebastian G. & Nuscheler, Robert, 2006. "Monopoly pricing with negative network effects: The case of vaccines," European Economic Review, Elsevier, vol. 50(4), pages 1061-1069, May.
    6. Francis, Peter J., 1997. "Dynamic epidemiology and the market for vaccinations," Journal of Public Economics, Elsevier, vol. 63(3), pages 383-406, February.
    7. Stéphane Mechoulan, 2007. "Market structure and communicable diseases," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 40(2), pages 468-492, May.
    8. Brito, Dagobert L. & Sheshinski, Eytan & Intriligator, Michael D., 1991. "Externalities and compulsary vaccinations," Journal of Public Economics, Elsevier, vol. 45(1), pages 69-90, June.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Communicable diseases; Prevalence; Monopolist; Price for treatment; Government funding; I18; L12;
    All these keywords.

    JEL classification:

    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies

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