Government Funding Policy Towards Communicable Diseases

Na Hao () and Gervan Fearon ()

Atlantic Economic Journal, 2009, vol. 37, issue 2, 134 pages

Abstract: The paper investigates the choice of government to offer a grant to a potential entrant aimed at reducing its fixed cost of entry when a monopoly firm provides the needed pharmaceutical drug given the prevalence path of the disease in a dynamic economic framework. The results of present study suggest that government can use a grant to credibly threaten the entry of a new firm into the industry and to promote limit-output pricing by the incumbent firm. The paper therefore suggests that the government policy set includes subsidizing the potential entry of a new firm into an industry manufacturing pharmaceutical drugs for the treatment of a communicable disease. Clearly, foreign aid could also be used as a source of this credible threat. The study also extends the paper by Mechoulan ( 2007 ) through the introduction of the government’s choice into the model. Copyright International Atlantic Economic Society 2009

Keywords: Communicable diseases; Prevalence; Monopolist; Price for treatment; Government funding; I18; L12 (search for similar items in EconPapers)
Date: 2009
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DOI: 10.1007/s11293-009-9168-8

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