COVID-19 vaccine manufacturers capture less than 2% of total social value

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How can we best accelerate vaccine availability? This is the question that Ahuja et al. (2021) try to answer in their Becker-Friedman Institute (BFI) working paper. First, they state the obvious: the cost of the COVID-19 pandemic is large. Specifically:

Each month, the COVID pandemic kills 300,000 people (as of Jan. 2021) and reduces global GDP by approximately $500 billion. The full cost, including losses to health and human capital is likely much larger. Cutler and Summers (2020) estimate total losses of $16 trillion (around $800 billion per month of the pandemic) for the US alone.

Clearly the COVID-19 vaccines are beneficial. But is pharma ripping us off? It turns out that at current prices, pharmaceutical firms capture a small share of the social value generated by increased vaccine supply.

…increasing the total supply of vaccine capacity available in January 2021 from 2 billion to 3 billion courses per year generated $1.75 trillion in social value, while additional firm revenue was closer to $30bn assuming a price of $15 per dose

If we assume $0 R&D and production cost, the figures above indicate that pharmaceutical firms would capture less than 2% of total social value; taking into account these costs likely would lead to the conclusion that that pharmaceutical firms producer surplus is less than 1% of total social welfare gained from increased COVID-19 vaccine production.

The rest of the article is interesting throughout including the discussion of push incentives (e.g., funding increased vaccine manufacturing capacity) vs. pull incentives (e.g., monetary incentives for increased development speed), the need for advanced market commitments, the elasticity of supply with respect to capacity funding, different vaccine negotiating strategies for high vs. low-income countries, and a number of other topics.

from Verdure https://bit.ly/39nnAlh