Designing Advance Market Commitments for New Vaccines

Michael Kremer, Jonathan Levin () and Christopher Snyder
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Jonathan Levin: Stanford University - Graduate School of Business; NBER

No 2020-175, Working Papers from Becker Friedman Institute for Research In Economics

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.

JEL-codes: D02 I18 O19 O31 (search for similar items in EconPapers)
Pages: 61 pages
Date: 2020
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Citations: View citations in EconPapers (5)

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https://repec.bfi.uchicago.edu/RePEc/pdfs/BFI_WP_2020175.pdf (application/pdf)

Related works:
Journal Article: Designing Advance Market Commitments for New Vaccines (2022)
Working Paper: Designing Advance Market Commitments for New Vaccines (2020)
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