Designing pull funding for a COVID-19 vaccine

Abstract

A widely accessible vaccine is essential to mitigate the health and economic ravages of coronavirus disease 2019 (COVID-19). Without appropriate incentives and coordination, however, firms might not respond at sufficient speed or scale, and competition among countries for limited supply could drive up prices and undercut efficient allocation. Programs relying on “push” incentives (direct cost reimbursement) can be complicated by the funder’s inability to observe firms’ private cost information. To address these challenges, we propose a “pull” program that incentivizes late-stage development (Phase III trials and manufacturing) for COVID-19 vaccines by awarding advance purchase agreements to bidding firms. Using novel cost and demand data, we calculated the optimal size and number of awards. In baseline simulations, the optimal program induced the participation of virtually all ten viable vaccine candidates, spending an average of $110 billion to generate net benefits of $2.8 trillion—nearly double the net benefits generated by the free market.