A Market for Vaccines Xavier Sala-i-Martin

Recall AIDS Fund (AIDS Fund) Governments of Rich Countries contribute to a fund The money is spent to buy vaccines at monopolistic price This provides incentives to do the research Yet the vaccines are affordable (or even free) for the poor citizens of the world.

Alternatives Government-led R&D (like NSF) Extending Patent Length Allow firms to increase price of existing vaccines or other products Dual Pricing

Government-financed Research – Government gives money to various proposals. – Good for Basic Research – More expensive because of waste Need to compensate researchers in other fields (political reasons) Researchers have little incentive to find the final vaccine (ex: may deviate if they find areas of research that lead to the Nobel prize). Remember that “Market for Vaccines Fund” pays only if a vaccine is found

Expanding Patent Length – Does provide incentives to do research – But does not solve the p=mc problem

Allow firms to increase price of existing vaccines or other products – Firms are charging the optimal (profit maximizing) price for these products. Thus, an increase in price would reduce profits. So it does not provide any incentive to do research. – Moreover, it does not address the price equal marginal cost problem

Dual Pricing (or Poor countries do not guarantee intellectual property rights) – WTO allows for dual prices in countries with “health crises” – After the fight with President Thabo Mbeki of South Africa, recent agreements extend this to “imports” (from India or Brazil) – Dual pricing reduces incentives for future research – It creates additional problems with crime and smuggling