Any first-year economics student will tell you that economics can get hard. And the truth is: They’re right. In fact, the brightest and best-trained economists sometimes don’t agree about complex issues.
The Initiative on Global Markets is a research centre located at the University of Chicago that routinely polls leading economists about issues relevant to public policy. Sometimes economists have near consensus. Other times, because some of the topics are incredibly complicated, economists disagree.
Economists were asked in June for their thoughts on the search for a COVID-19 vaccine. We summarize the results in this post.
Do price caps reduce the incentive to find a vaccine?
Pharmaceutical companies, like other firms, exist in a market. When a price cap is present in a market, the price cap attempts to prevent the price from regulating the quantities demanded and supplied. The force of the law and the market forces are in conflict. Firms don’t have the same incentive to produce what they would produce in an unregulated market.
If a government committed to paying more than an equilibrium price, would this accelerate the production of a COVID-19 vaccine?
Firms maximize profit. If firms can increase economic profit by ramping up production, they will increase production. If the government committed to paying more than the equilibrium price of an unregulated market, this would provide incentive for firms to produce more.
Should COVID-19 vaccinations be mandatory (for people who are not immunocompromised)? Should the government pay for vaccinations?
Positive externalities come with vaccinations, and vaccinations against COVID-19 are no exception. When positive externalities exist, the market outcome generates an underproduction relative to the socially optimal outcome. Mandating the vaccination and subsidizing its cost increases the quantity of vaccinations performed, moving toward the socially optimal equilibrium.
Let’s look at the market for COVID-19 vaccines.
Now take a short quiz to check that you understand what you just read.
Multiple Choice Test: COVID-19 Vaccines