Individuals social concern, externalities and voluntary vaccination: Monopoly and first-best public policy

This paper studies the role of individuals' social concern in a monopoly vaccine market characterized by externalities, and the first-best public policy. Considering a voluntary vaccination environment and social concern as private information, we show the following. A `spread-preserving, mean-increasing' shift in distribution of social concern induces the monopolist to curb vaccine coverage, unless there is sufficient heterogeneity in social concern. A `mean-preserving, spread-increasing' shift enhances vaccine coverage if vaccine quality and its marginal direct health benefit are sufficiently large. If net intensity of externality is stronger or vaccine quality is higher, for the monopolist to increase vaccine coverage, it's necessary to have significant heterogeneity in social concern. Monopoly-induced downward distortion in market coverage can be corrected through alternative balanced-budget profit-neutral policy interventions. Under endogenous vaccine quality, the monopolist provides a partially-effective vaccine. A performance-linked R&D subsidy that achieves socially optimal vaccine quality depends on the distribution of social concern.