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Investment in antiviral drugs: a real options approach

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  • Arthur E. Attema
  • Anna K. Lugnér
  • Talitha L. Feenstra

Abstract

Real options analysis is a promising approach to model investment under uncertainty. We employ this approach to value stockpiling of antiviral drugs as a precautionary measure against a possible influenza pandemic. Modifications of the real options approach to include risk attitude and deviations from expected utility are presented. We show that risk aversion counteracts the tendency to delay investment for this case of precautionary investment, which is in contrast to earlier applications of risk aversion to real options analysis. Moreover, we provide a numerical example using real world data and discuss the implications of real options analysis for health policy. Suggestions for further extensions of the model and a comparison with the expected value of information analysis are put forward. Copyright © 2009 John Wiley & Sons, Ltd.

Suggested Citation

  • Arthur E. Attema & Anna K. Lugnér & Talitha L. Feenstra, 2010. "Investment in antiviral drugs: a real options approach," Health Economics, John Wiley & Sons, Ltd., vol. 19(10), pages 1240-1254, October.
    • Handle: RePEc:wly:hlthec:v:19:y:2010:i:10:p:1240-1254
    DOI: 10.1002/hec.1549
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    References listed on IDEAS

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    1. > Economics of Welfare > Health Economics > Economics of Pandemics > Preparation > Infrastructure and Research

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    Cited by:

    1. Maarten Ijzerman & Lotte Steuten, 2011. "Early assessment of medical technologies to inform product development and market access," Applied Health Economics and Health Policy, Springer, vol. 9(5), pages 331-347, September.
    2. Robin N Thompson & Christopher A Gilligan & Nik J Cunniffe, 2018. "Control fast or control smart: When should invading pathogens be controlled?," PLOS Computational Biology, Public Library of Science, vol. 14(2), pages 1-21, February.
    3. Marcello Basili & Silvia Ferrini & Emanuele Montomoli, 2012. "Swine influenza and vaccines: an alternative approach for decision making about pandemic prevention," Department of Economics University of Siena 647, Department of Economics, University of Siena.
    4. Willem H. Woertman & Gijs Van De Wetering & Eddy M. M. Adang, 2014. "Cost-Effectiveness on a Local Level," Medical Decision Making, , vol. 34(3), pages 379-386, April.
    5. Itamar Megiddo & Dusan Drabik & Tim Bedford & Alec Morton & Justus Wesseler & Ramanan Laxminarayan, 2019. "Investing in antibiotics to alleviate future catastrophic outcomes: What is the value of having an effective antibiotic to mitigate pandemic influenza?," Health Economics, John Wiley & Sons, Ltd., vol. 28(4), pages 556-571, April.
    6. Susan Chilton & Jytte Seested Nielsen & John Wildman, 2020. "Beyond COVID‐19: How the ‘dismal science’ can prepare us for the future," Health Economics, John Wiley & Sons, Ltd., vol. 29(8), pages 851-853, August.
    7. David E. Bloom & Michael Kuhn & Klaus Prettner, 2022. "Modern Infectious Diseases: Macroeconomic Impacts and Policy Responses," Journal of Economic Literature, American Economic Association, vol. 60(1), pages 85-131, March.
    8. Meyer, Elisabeth & Rees, Ray, 2012. "Watchfully waiting: Medical intervention as an optimal investment decision," Journal of Health Economics, Elsevier, vol. 31(2), pages 349-358.
    9. Chen, Simiao & Kuhn, Michael & Prettner, Klaus & Bloom, David E. & Wang, Chen, 2021. "Macro-level efficiency of health expenditure: Estimates for 15 major economies," Social Science & Medicine, Elsevier, vol. 287(C).

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