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On the Optimal Production Capacity for Influenza Vaccine

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  • Forslid, Rikard
  • Herzing, Mathias

Abstract

This paper analyses the profit maximising capacity choice of a monopolistic vaccine producer facing the uncertain event of a pandemic in a homogenous population of forward-looking individuals. For any capacity level the monopolist solves the intertemporal price discrimination problem within the dynamic setting generated by the standard mathematical epidemiological model of infectious diseases. The monopolist thus bases its investment decision on the expected profits from the optimal price path given the infection dynamics. It is shown that the monopolist will always choose to invest in a lower production capacity than the social planner. Through numerical simulation it is demonstrated how the loss to society of having a monopoly producer decreases with the speed of infection transmission. Moreover, it is illustrated how the relationship between the monopolist's optimal vaccination rate and its time discount rate crucially depends on the cost of production capacity.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6808.

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Date of creation: Apr 2008
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Handle: RePEc:cpr:ceprdp:6808

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Keywords: Vaccines;

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References

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  1. Francis, Peter J., 1997. "Dynamic epidemiology and the market for vaccinations," Journal of Public Economics, Elsevier, vol. 63(3), pages 383-406, February.
  2. Tomas Philipson, 1999. "Economic Epidemiology and Infectious Diseases," NBER Working Papers 7037, National Bureau of Economic Research, Inc.
  3. 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.
  4. Kremer, Michael, 1996. "Integrating Behavioral Choice into Epidemiological Models of AIDS," The Quarterly Journal of Economics, MIT Press, vol. 111(2), pages 549-73, May.
  5. Mark Gersovitz & Jeffrey S. Hammer, 2004. "The Economical Control of Infectious Diseases," Economic Journal, Royal Economic Society, vol. 114(492), pages 1-27, 01.
  6. Michael Kremer & Christopher M. Snyder, 2003. "Why Are Drugs More Profitable Than Vaccines?," NBER Working Papers 9833, National Bureau of Economic Research, Inc.
  7. Geoffard, Pierre-Yves & Philipson, Tomas, 1997. "Disease Eradication: Private versus Public Vaccination," American Economic Review, American Economic Association, vol. 87(1), pages 222-30, March.
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Cited by:
  1. Nicolas Houy, 2013. "Are better vaccines really better? The case of a simple stochastic epidemic SIR model," Economics Bulletin, AccessEcon, vol. 33(1), pages 207-216.

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