Oops: The Problem with the Athey, Kremer, Snyder, and Tabarrok Proposal
By David Henderson
They implicitly threw away markets in favor of central planning.
An advance market commitment for Covid-19 should combine “push” and “pull” incentives. The “pull” incentive is the commitment to buy 300 million courses of vaccine at a per-person price of $100, for vaccines produced within a specified time frame. If multiple vaccines are developed, the A.M.C. fund will have authority to choose products to purchase based on efficacy, the availability of sufficient vaccine for timely vaccination or suitability for different population groups. So firms compete to serve the first 300 million people with the most attractive vaccines, and the “pull” component provides strong incentives for both speed and quality.
This is from Susan Athey, Michael Kremer, Christopher Snyder and
Here’s the problem: Once the companies produce the vaccine and sell it to the government, what assures that the vaccine will be distributed well and quickly? I wrote about this earlier this month in David R. Henderson, “Vaccines’ Last Hurdle: Central Planners,” Defining Ideas, December 4, 2020.
Essentially what we have is government as monopsonist: monopoly buyer buying something valuable and then distributing this valuable item at a zero price. From what I can gather from reading about Pfizer, it has done its job admirably. But central planning, rather than markets and pricing, is being used to distribute the vaccine.
This isn’t the fault of Athey et al. And it’s conceivable that they had zero impact on Operation Warp Speed so the mess-up might not be their fault. But they hoped to affect the outcome. So, given the huge stakes, it would have been nice, in a longer than usual NY Times op/ed, for the authors, all talented economists, to spend at least a paragraph making clear that the drug companies should be free to sell the drug. They might have wanted to advocate a price cap of, say, $100, but a price of $100 gives better incentives than a price of $0.