Government Funding Policy Towards Communicable Diseases
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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Volume (Year): 37 (2009)
Issue (Month): 2 (June)
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- 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.
- Stéphane Mechoulan, 2007.
"Market structure and communicable diseases,"
Canadian Journal of Economics,
Canadian Economics Association, vol. 40(2), pages 468-492, May.
- Francis, Peter J., 1997. "Dynamic epidemiology and the market for vaccinations," Journal of Public Economics, Elsevier, vol. 63(3), pages 383-406, February.
- Gersovitz, Mark & Hammer, Jeffrey S., 2001.
"The economic control of infectious diseases,"
Policy Research Working Paper Series
2607, The World Bank.
- 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).
- 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.
- 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.
- 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.
- 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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