Advance Market Commitment: Some Issues and a Remedy

Patrick Leoni

Revue d'économie politique, 2019, vol. 129, issue 1, 1-9

Abstract: We argue that Advance Market Commitments, the most common mechanism to foster R & D in innovative treatments for neglected diseases, is inefficient in practice. We first show that currently used AMCs suffer from a severe Time Inconsistency problem, and that any rational pharmaceutical company should behave as if no such mechanism were available when deciding to start R & D for innovative treatments. We propose a mechanism that removes this inconsistency, which involves credible commitment. We then give the intuition why the optimal AMC with credible commitment leads to the lowest acceptable chance of having a successful medical innovations, given announced compensations. The question of finding the optimal mechanism to foster innovative treatments for neglected diseases is still open. JEL codes: I1, I3, G15

Keywords: neglected diseases; incentive mechanisms; time inconsistency; optimal mechanism (search for similar items in EconPapers)
JEL-codes: G15 I1 I3 (search for similar items in EconPapers)
Date: 2019
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