Setting Prices for New Vaccines (in Advance)

New vaccines have high social value, but the incentives to firms to develop new vaccines appear to be weak. This paper recommends setting a procurement price for a new vaccine prior to the vaccine's development, with the price based on the anticipated benefits from developing the vaccine. The price paid to vaccine suppliers is not equal to the price charged to either consumers supplied by public or private sources, so a high price does not choke off demand. A supply price leading to efficient levels of investment can be figured in advance based on cost-effectiveness analyses. Calculations indicate that efficient vaccine prices are considerably above prices currently paid for new vaccines. (September 2003)