Arnold Kling  

Vaccine Shortage

Omniscient Voyeur... Dollar Bubble...

Russ Roberts has been all over the vaccine shortage story. In one post among many, he asks,

Normally when there's uncertainty about demand, price rises to compensate suppliers for the extra risk. And consumers are happy to pay that higher price to make sure the supply is there. Why is this market falling apart?

His answer is that it appears that government has become the largest buyer of flu vaccines, and government has forced the price too low, driving suppliers out of the market.

Russ does a good job of focusing the issue not on the generic characteristics of vaccine supply, but on the question of what is different now that would result in fewer producers.

For Discussion. Vaccines are considered a classic example of public health, that is, something that the government must manage. What are the pros and cons of government involvement in the vaccine business?

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COMMENTS (4 to date)
jackinnj writes:

supply and demand, or long term wealth -- jury selection is "perverse" (if you know anything about economics have you ever been on a jury for an insurance or malpractice case?) and the odds of an adverse outcome times the penalty weigh heavily against investing in new vaccines (or old ones to BOOT!)

superdestroyer writes:

Since the government does not own a vaccine production facility and if vaccines are a public good, then the only way for the government to ensure supplies is to contract with a production facility for produce a certain amount of a certain strain every year.

Thus, the government would have to use a fixed price plus incentives or a cost plus contract. Either one would produce a known amount every year but would to it at higher costs than today.

The economics would be similiar to defense contracting today which is usually not held up as a cost effective method of production.

skh writes:

Whenever the government places itself as the primary consumer of a product in a given market, an artificial equilibrium price is necessary. As go rent controls, so go vaccines. From what I learned in Econ I, a price ceiling will produce a shortage and a price floor will create a surplus. I would have to guess that the wrench in the works for the vaccine question would be those regulations that are hostile to many of the (former) vaccine producers.

Lawrance George Lux writes:
What are the pros and cons of government involvement in the vaccine business?

The Government set the Price floor itself. The cost of flus vaccine would drop, if Government stopped buying vaccine. The economic losses from endurance of the disease does not warrant the expenditure in vaccine. Car accidents cause more disabilities and death than the flu, but should the Government buy all the cars to insure they are accident-proof, then give them away free?

There would be sufficient vaccine at reasonable cost, if the Government did three things: stop giving it away for free, stop Company liability if it met Government specifications as a safe vaccine, and start taxing Drug manufacturers the same as other manufacturers with normal Capitalization and Recapitalization allowances. lgl

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