The article deals with the issues of different prices set for the Covid vaccine and its implications.
Understanding the positive and negative externalities
- Vaccines have a positive externality; it is a good whose consumption benefits not just the one who has it.
- A vaccinated person is not only relatively protected against the disease himself/herself, but also less likely to transmit it to others.
- Usually, a person getting vaccinated takes into account only his/her own cost and benefit, while ignoring the fact that he/she lowers the chances of infecting others.
- It is the opposite of smoking, which has “negative externality”.
- Since every individual ignores the full set of benefits/costs from consuming goods with positive/negative externalities, the market isn’t always the most efficient mechanism for allocation of such goods.
- That is a key reason why governments treat goods having large positive externalities as “public goods” and provide these while factoring in the full costs and benefits to society.
Analysing the issues with vaccine policy
1) Vaccine inequality
- It requires vaccine manufacturers to supply 50 per cent of their production to the Centre at controlled prices, while allowing them to sell the remaining half in the open market including to state governments at pre-announced “self-set” prices.
- To start with, the new policy can lead to differential access to the vaccine.
- Manufacturers are supposed to “transparently declare” their prices in advance for their 50 per cent supply to the open market.
- But there is no limit per se on the retail price they would charge.
- This could lead to a whole range of prices and vaccine inequality, apart from diversion of supplies from the controlled low-price government centres to the open market.
- So, we may well have scarcity in the “mass” segment co-existing with a glut in the “elite” segment.
- There is also concerns about economic efficiency and the potential for market failure.
2) Economic efficiency and potential for market failure
- Imagine there are two sets of people in India.
- The first consists of those who are better off and can afford to stay back or work from home.
- This lot is also less likely to cause infection to others.
- The second set is mostly blue-collar workers, small traders, vendors and agriculturists.
- The nature of their work — on the shop floor or in the field — makes them naturally prone to infect others.
- It follows, then, that society gains from first vaccinating the latter, as they have a higher negative externality.
- The market will ignore those with lower purchasing power, despite them having a higher probability of spreading the disease.
- In fact, the bigger the income difference between the two segments, the greater will be the extent of market failure from simultaneous over-provisioning and under-provisioning.
Way forward
- The solution could be a single price to be paid to vaccine makers for all the doses that they supply.
- The price should be high enough to stimulate them to rapidly ramp up production.
- Those government should pay directly to the vaccine maker or the hospital administering the dose for those without sufficient means.
- The suggested solution is similar to the fertiliser subsidy, which is now disbursed to companies only after actual sales to farmers.
Consider the question “What policy should be followed for the vaccination in the country? What are the issues with the curent policy which involved different price for government and for open market.”
Conclusion
A single price for Covid-19 vaccines will stimulate production, ensure efficient vaccination.
