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Government Funding Policy Towards Communicable Diseases

  • Na Hao

    ()

  • Gervan Fearon

    ()

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

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File URL: http://hdl.handle.net/10.1007/s11293-009-9168-8
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Article provided by International Atlantic Economic Society in its journal Atlantic Economic Journal.

Volume (Year): 37 (2009)
Issue (Month): 2 (June)
Pages: 121-134

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Handle: RePEc:kap:atlecj:v:37:y:2009:i:2:p:121-134
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  1. Mark Gersovitz & Jeffrey S. Hammer, 2003. "Infectious Diseases, Public Policy, and the Marriage of Economics and Epidemiology," World Bank Research Observer, World Bank Group, vol. 18(2), pages 129-157.
  2. Stéphane Mechoulan, 2007. "Market structure and communicable diseases," Canadian Journal of Economics, Canadian Economics Association, vol. 40(2), pages 468-492, May.
  3. Francis, Peter J., 1997. "Dynamic epidemiology and the market for vaccinations," Journal of Public Economics, Elsevier, vol. 63(3), pages 383-406, February.
  4. Gersovitz, Mark & Hammer, Jeffrey S., 2001. "The economic control of infectious diseases," Policy Research Working Paper Series 2607, The World Bank.
  5. Kessing, Sebastian & Nuscheler, Robert, 2003. "Monopoly pricing with negative network effects: the case of vaccines
    [Monopolpreisbildung mit negativen Netzwerkeffekten am Beispiel von Impfstoffen]
    ," Discussion Papers, Research Unit: Market Processes and Governance SP II 2003-06, Social Science Research Center Berlin (WZB).
  6. 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.
  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. 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.
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