Designing Advance Market Commitments for New Vaccines

Michael Kremer (), Jonathan Levin () and Christopher Snyder
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Michael Kremer: Department of Economics, Harris School of Public Policy and Development Action Laboratory, University of Chicago, Chicago, Illinois 60637; National Bureau of Economic Research, Cambridge, Massachusetts 02138
Jonathan Levin: National Bureau of Economic Research, Cambridge, Massachusetts 02138; Stanford University Graduate School of Business, Stanford University, Stanford, California 94305

Management Science, 2022, vol. 68, issue 7, 4786-4814

Abstract: Advance market commitments (AMCs) provide a mechanism to stimulate investment by suppliers of products to low-income countries. In an AMC, donors commit to a fund from which a specified subsidy is paid per unit purchased by low-income countries until the fund is exhausted, strengthening suppliers’ incentives to invest in research, development, and capacity. Last decade saw the launch of a $1.5 billion pilot AMC to distribute pneumococcal vaccine to the developing world; in the current pandemic, variations on AMCs are being used to fund COVID-19 vaccines. This paper undertakes the first formal analysis of AMCs. We construct a model in which an altruistic donor negotiates on behalf of a low-income country with a vaccine supplier after the supplier has sunk investments. We use this model to explain the logic of an AMC—as a solution to a hold-up problem—and to analyze alternative design features under various economic conditions (cost uncertainty, supplier competition). A key finding is that optimal AMC design differs markedly depending on where the product is in its development cycle.

Keywords: economics: microeconomic behavior; economics: game theory and bargaining theory; healthcare: treatment; industries: pharmaceutical; organizational studies: design (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (12)

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http://dx.doi.org/10.1287/mnsc.2021.4163 (application/pdf)

Related works:
Working Paper: Designing Advance Market Commitments for New Vaccines (2020)
Working Paper: Designing Advance Market Commitments for New Vaccines (2020)
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