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A Two-Sided Incentive Program for Coordinating the Influenza Vaccine Supply Chain

Author

Listed:
  • Kenan Arifoğlu

    (School of Management, University College London, London E14 5AA, United Kingdom)

  • Christopher S. Tang

    (Anderson School of Management, University of California, Los Angeles, Los Angeles, California 90095)

Abstract

Problem definition : The U.S. influenza (flu) vaccine supply chain is decentralized and experiences frequent supply and demand mismatches caused by two key factors: (1) the vaccine production process (yield) is highly uncertain; and (2) individuals are self-interested and do not completely take into account positive and negative externalities that they impose on others. To improve matching of supply and demand, we counteract these factors by developing an ex ante budget-neutral incentive program. Academic/practical relevance : We establish the sources of inefficiency in the flu vaccine supply chain. To eliminate the inefficiency, we develop a two-sided incentive program that policymakers can implement to finance vaccines under an ex ante balanced budget. Methodology : We model the flu vaccine supply chain as a decentralized system consisting of self-interested individuals on the demand side, and a profit-maximizing manufacturer with uncertain yield on the supply side. We use backward induction to characterize the subgame-perfect equilibrium of the sequential game that models the interactions between individuals and the manufacturer. Results : We develop a two-sided incentive program that proposes “vaccination incentives” to be given to individuals on the demand side, and “a menu of transfer payments” between the social planner and manufacturer on the supply side. When the realized vaccine supply is high (or low), our incentive program provides positive (negative) vaccination incentives for individuals to stimulate (or curb) the demand and eliminate positive (or negative) externalities by making vaccination more affordable (or costly). When social benefits from vaccination are significantly high, our incentive program uses a menu of transfer payments to penalize (or subsidize) the manufacturer for low (or high) yield realizations so that it produces the socially optimal quantity. We show that our incentive program can attain the social optimum, maintain an ex ante balanced budget (i.e., budget-neutral in expectation), and distribute the maximum social welfare between individuals and the manufacturer arbitrarily. Managerial implications : Vaccination incentives to individuals can ensure their access to the vaccine, but they are not enough to entice the manufacturer to ensure vaccine availability. A menu of contracts contingent on realized yield provides necessary incentives to the manufacturer and assures the availability.

Suggested Citation

  • Kenan Arifoğlu & Christopher S. Tang, 2022. "A Two-Sided Incentive Program for Coordinating the Influenza Vaccine Supply Chain," Manufacturing & Service Operations Management, INFORMS, vol. 24(1), pages 235-255, January.
    • Handle: RePEc:inm:ormsom:v:24:y:2022:i:1:p:235-255
    DOI: 10.1287/msom.2020.0938
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    References listed on IDEAS

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    1. Kenan Arifoglu & Sarang Deo & Seyed M. R. Iravani, 2012. "Consumption Externality and Yield Uncertainty in the Influenza Vaccine Supply Chain: Interventions in Demand and Supply Sides," Management Science, INFORMS, vol. 58(6), pages 1072-1091, June.
    2. Stephen E. Chick & Sameer Hasija & Javad Nasiry, 2017. "Information Elicitation and Influenza Vaccine Production," Operations Research, INFORMS, vol. 65(1), pages 75-96, February.
    3. Kut C. So & Christopher S. Tang, 2000. "Modeling the Impact of an Outcome-Oriented Reimbursement Policy on Clinic, Patients, and Pharmaceutical Firms," Management Science, INFORMS, vol. 46(7), pages 875-892, July.
    4. Adida, Elodie & Dey, Debabrata & Mamani, Hamed, 2013. "Operational issues and network effects in vaccine markets," European Journal of Operational Research, Elsevier, vol. 231(2), pages 414-427.
    5. Stephen E. Chick & Sameer Hasija & Javad Nasiry, 2017. "Information Elicitation and Influenza Vaccine Production," Operations Research, INFORMS, vol. 65(1), pages 75-96, February.
    6. Stephen E. Chick & Hamed Mamani & David Simchi-Levi, 2008. "Supply Chain Coordination and Influenza Vaccination," Operations Research, INFORMS, vol. 56(6), pages 1493-1506, December.
    7. 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.
    8. Soo-Haeng Cho, 2010. "The Optimal Composition of Influenza Vaccines Subject to Random Production Yields," Manufacturing & Service Operations Management, INFORMS, vol. 12(2), pages 256-277, November.
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    Cited by:

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    2. Alireza Tajbakhsh & Mohammadreza Nematollahi & Azam Shamsi Zamenjani, 2026. "Migration to the quadruple bottom line framework for achieving sustainable development goals: the 4Ps of sustainability," Annals of Operations Research, Springer, vol. 356(2), pages 1191-1229, January.

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