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The Economic Dynamics of Antibiotic Efficacy under Open Access

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  • GAUDET, Gérard
  • HERRMANN, Markus

Abstract

We analyze the exploitation of an antibiotic in a market subject to open access on the part of antibiotic producers to the common pool of antibiotic efficacy and compare it to the social optimum. Demand for the antibiotic is derived under the assumption that individuals differ with respect to their valuation of being in good health. The dynamics of the antibiotic efficacy is based on an epidemiological model which describes the dynamic interaction between the level of efficacy of the antibiotic and the level of infection in the population, including the fact that antibiotic consumption tends to deplete the efficacy of the antibiotic in combating bacterial infections as the bacteria develop resistance to the antibiotic. The antibiotic producers care only about the variables that affect the instantaneous demand for the drug, namely the current stock of infected population and the current level of efficacy of the antibiotic, and enter the market until price is driven down to average cost. The social optimum, on the other hand, takes into account the welfare of the entire population, including that portion of the population which is in good health and that which is infected but chooses not to consume the antibiotic, as well as the effect of the current treatment rate on the future efficacy of the treatment and the future stock of infected population. We show that depending on the parameters of the model, in particular the cost of production and the improvement in the recovery rate that results from treatment, the positive steady-state level of antibiotic efficacy to which the system tends under open access can be lower or higher than the level which should prevail in the socially optimal steady state. In fact there are parameter configurations for which the steady states can be exactly the same. But no matter how the steady states compare, the socially optimal and the open-access paths to steady state will differ and involve different paths for the treatment rates.

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  • GAUDET, Gérard & HERRMANN, Markus, 2007. "The Economic Dynamics of Antibiotic Efficacy under Open Access," Cahiers de recherche 2007-04, Universite de Montreal, Departement de sciences economiques.
  • Handle: RePEc:mtl:montde:2007-04
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    File URL: http://hdl.handle.net/1866/1483
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    1. Kenneth L. Judd, 1998. "Numerical Methods in Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262100711, January.
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    3. Laxminarayan, Ramanan & Brown, Gardner M., 2001. "Economics of Antibiotic Resistance: A Theory of Optimal Use," Journal of Environmental Economics and Management, Elsevier, vol. 42(2), pages 183-206, September.
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    Cited by:

    1. Eswaran, Mukesh & Gallini, Nancy, 2016. "Rescuing the Golden Age of Antibiotics: Can Economics Help Avert the Looming Crisis?," Economics working papers nancy_gallini-2016-9, Vancouver School of Economics, revised 04 Jul 2016.
    2. Massimo Filippini & Laura González & Giuliano Masiero, 2010. "Estimating dynamic consumption of antibiotics using panel data: the shadow effect of bacterial resistance," Quaderni della facoltà di Scienze economiche dell'Università di Lugano 1011, USI Università della Svizzera italiana.
    3. Anderson, Soren T. & Laxminarayan, Ramanan & Salant, Stephen W., 2012. "Diversify or focus? Spending to combat infectious diseases when budgets are tight," Journal of Health Economics, Elsevier, vol. 31(4), pages 658-675.
    4. Herrmann, Markus & Nkuiya, Bruno & Dussault, Anne-Renée, 2013. "Innovation and antibiotic use within antibiotic classes: Market incentives and economic instruments," Resource and Energy Economics, Elsevier, vol. 35(4), pages 582-598.
    5. M. Filippini & G. Masiero, 2012. "An empirical analysis of habit and addiction to antibiotics," Empirical Economics, Springer, vol. 42(2), pages 471-486, April.
    6. Herrmann, Markus, 2010. "Monopoly pricing of an antibiotic subject to bacterial resistance," Journal of Health Economics, Elsevier, vol. 29(1), pages 137-150, January.
    7. Eswaran, Mukesh & Gallini, Nancy, 2017. "Can Competition Extend the Golden Age of Antibiotics?," Microeconomics.ca working papers -2017-9, Vancouver School of Economics, revised 19 Oct 2017.
    8. Thomas Heister & Christian Hagist & Klaus Kaier, 2015. "Resistance Elasticity of Antibiotic Demand in Intensive Care," WHU Working Paper Series - Economics Group 15-01, WHU - Otto Beisheim School of Management.
    9. Bialek, Sylwia, 2016. "Introducing Cattle Producer to the Hardin s World- Can Monopolies in Seed Markets Be Welfare Enhancing?," Annual Conference 2016 (Augsburg): Demographic Change 145786, Verein für Socialpolitik / German Economic Association.

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    Keywords

    economics of antibiotic resistance; antibiotic efficacy; renewable resource; on-access equilibrium; social oimum;

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