Andrea Ucini
Wherever they are available, COVID-19 vaccines are saving lives, lowering infection rates, and enabling economies to start recovering from the pandemic’s debilitating effects. But on a global level, there are not enough vaccine courses to go around as demand outstrips supply.
To address this, countries should quickly build additional vaccine capacity, according to research. “Investing in accelerating vaccines can pay for itself many times over from reduced fiscal costs alone,” one study reports.
The work, by 16 researchers including Chicago Booth’s Eric Budish and Canice Prendergast, assumes the capacity for the world’s annual baseline vaccine supply to be 3 billion courses. As of February, this is higher than current production but lower than companies’ best-case production plans for 2021. (One course can be one or two doses, depending on the vaccine.)
That baseline supply will have a global benefit of $8.7 trillion in terms of GDP, and at least $17.4 trillion in additional benefits, according to the researchers, who calculate a benefit of about $5,800 per course for that initial supply.
Adding 1 billion vaccine courses to the current baseline supply would create enormous additional benefits. The researchers calculate a benefit of almost $1,000 per course—still far greater than the vaccine price, which has ranged from $6 to $40. Because early vaccine courses are able to mitigate more economic harm, the return on early capacity is greater, the researchers write.
However, “even assuming a lag of several months, we find that additional investment can still be extremely valuable,” they write. An extra billion courses that come online soon would avoid almost $1 trillion in losses. If they come online with a lag of several months, they would still be worth $576 billion, according to the study.
Speed is of the essence in a pandemic, and the researchers’ model indicates that a higher level of early-capacity investment would yield large net benefits for countries of all income levels. By following the researchers’ recommendation beginning in August 2020, the United States would have achieved widespread vaccination by March 2021 rather than this summer, as is projected. Had their recommendations guided decisions at a global level, widespread vaccination could have been achieved by October 2021 rather than in 2022.
It’s not too late to invest in more capacity, both now and for future pandemics, the researchers write.
Because the potential benefit to society far outstrips the profits that vaccine manufacturers stand to make, the researchers offer suggestions for how to expand and stretch existing capacity. For starters, they recommend that countries pay the costs associated with increasing capacity rather than promise vaccine manufacturers higher prices. Offering bonuses or threatening penalties related to speed of vaccine delivery might involve too much risk for a manufacturer. Plus, promising higher prices may simply embolden countries to jump the line for vaccines rather than spur greater production. If governments instead reimburse companies for investing in factories and other elements that increase capacity, they will encourage greater vaccine production while minimizing risk for pharmaceutical companies.
In “push” contracts, governments reimburse companies for making these investments before a vaccine is fully tested and approved. In “pull” contracts, they commit to purchasing a future vaccine if it’s approved, leaving some risk for manufacturers. It would be best, the researchers write, to adopt push contracts in most cases but to cover less than the full cost involved so that companies maintain some skin in the game. Pfizer, they note, had such a contract in 2020 and built capacity at its own risk. This type of contract would also deter companies with little chance of producing a successful vaccine.
The researchers also have other recommendations for governments, including investments in supply-chain capacity. In a pandemic, the price for the materials used to make and deliver a vaccine, such as glass vials and bioreactors, can shoot up—but only temporarily. Because of this, governments could stockpile these items or intervene by building extra manufacturing capacity for them. To ensure that such measures are carried out most efficiently, governments should solicit bids to expand vaccine capacity, which could involve building new factories or repurposing existing ones. Even if the bids are higher than they would be in normal times, the investments will likely pay off, the researchers note.
There may also be ways to stretch the existing capacity of vaccines, they write, recommending that countries look into options that include delaying the second dose of a two-dose regimen or giving only one dose to people who were previously infected with COVID-19. Companies could construct trials so that they learn how to use vaccines in a targeted way in order to prevent new strains from spreading, and they could consider skipping unvaccinated control groups in Phase 3 trials in order to allow for bigger, faster tests.
Hosts Bethany McLean and Luigi Zingales tackle the complex questions around developing and distributing a coronavirus vaccine in a capitalist system.
Capitalisn’t: The Capitalisn’t of Vaccines
Research suggests that consumers and business managers have tended to underestimate other people’s desire for stricter public-health measures.
Stricter Mask-Wearing Rules Are Good BusinessMany countries are negotiating contracts for vaccines directly with producers, and some have leaned toward investing in domestic vaccine producers because of fears that vaccine nationalism could interfere with exports. High-income countries have signed a disproportionate share of these deals so far, and any further increase in capacity would initially help them. But full economic benefits would require vaccinating the broader population, both within a country and around the globe, the researchers argue.
The need to retain vaccine prices at affordable levels is critical for lower income countries. While it may not be necessary to centralize global vaccine procurement to do so, they write, some degree of this could help to hold down prices, saving lives in poorer countries. Prendergast, Budish, and Harvard’s Scott Duke Kominers are working on a vaccine exchange that would allow countries to trade vaccines and route them efficiently, building on previous research on how to allocate food to food banks and courses to business-school students. (For more, read “Market forces can help fill food banks,” from our Spring 2020 issue, and “Why fake money is better than real money at feeding the hungry,” from the Winter 2016 issue.)
Although the amount governments spend on vaccines would be returned many times over in the cost benefits, most of the $12 billion in financing offered by the World Bank to developing countries for pandemic-related health expenditures remains untapped, the researchers note. “Using these funds to expand vaccine capacity would have high net benefits for developing countries and their donors,” they write. It’s not too late to invest in more capacity, both now and for future pandemics, they write, “but markets will not deliver this capacity on their own.”
The agency has signaled increased scrutiny of nonreportable mergers in healthcare.
Is the FTC Targeting ‘Stealth Consolidation’ by Private Equity?
In the complex real economy, consumer price inflation can be a misleading indicator.
What’s Causing Inflation: Supply or Demand?
Experts in finance and economics consider the costs and benefits of the US’s contentious cap on borrowing.
Does the Debt Ceiling Do More Harm than Good?Your Privacy
We want to demonstrate our commitment to your privacy. Please review Chicago Booth's privacy notice, which provides information explaining how and why we collect particular information when you visit our website.