Consumption Externality and Yield Uncertainty in the Influenza Vaccine Supply Chain: Interventions in Demand and Supply Sides

Kenan Arifoglu (), Sarang Deo () and Seyed M. R. Iravani ()
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Kenan Arifoglu: Department of Industrial Engineering and Management Sciences, Northwestern University, Evanston, Illinois 60208
Sarang Deo: Indian School of Business, Gachibowli, Hyderabad 500032, India
Seyed M. R. Iravani: Department of Industrial Engineering and Management Sciences, Northwestern University, Evanston, Illinois 60208

Management Science, 2012, vol. 58, issue 6, 1072-1091

Abstract: We study the impact of yield uncertainty (supply side) and self-interested consumers (demand side) on the inefficiency in the influenza vaccine supply chain. Previous economic studies, focusing on demand side, find that the equilibrium demand is always less than the socially optimal demand because self-interested individuals do not internalize the social benefit of protecting others via reduced infectiousness (positive externality). In contrast, we show that the equilibrium demand can be greater than the socially optimal demand after accounting for the limited supply due to yield uncertainty and manufacturer's incentives. The main driver for this result is a second (negative) externality: Self-interested individuals ignore that vaccinating people with high infection costs is more beneficial for the society when supply is limited. We show that the extent of the negative externality can be reduced through more efficient and less uncertain allocation mechanisms. To investigate the relative effectiveness of government interventions on supply and demand sides under various demand and supply characteristics, we construct two partially centralized scenarios where the social planner (i.e., government) intervenes either on the demand side or the supply side, but not both. We conduct an extensive numerical analysis. This paper was accepted by Yossi Aviv, operations management.

Keywords: influenza vaccine; supply chain inefficiency; strategic consumer behavior; externality; yield uncertainty (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (44)

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