Information Elicitation and Influenza Vaccine Production

We explore the procurement of influenza vaccines by a government whose objective is to minimize the expected social costs (including vaccine, vaccine administration, and influenza treatment costs) when a for-profit vaccine supplier has production yield uncertainty, private information about its prod...

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Bibliographic Details
Published in:Operations research 2017-01, Vol.65 (1), p.75-96
Main Authors: Chick, Stephen E., Hasija, Sameer, Nasiry, Javad
Format: Article
Language:English
Subjects:
adverse selection
Biological products industry
Contracts
Cost control
Costs
CROSSCUTTING AREAS
Delivery scheduling
Drug prices
epidemiology
Government purchasing
Influenza
influenza vaccine supply chain
Influenza vaccines
mechanism design
moral hazard
Operations research
Pharmaceutical industry
principal-agent modeling
Production management
Productivity
Upper bounds
Vaccines
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Summary:We explore the procurement of influenza vaccines by a government whose objective is to minimize the expected social costs (including vaccine, vaccine administration, and influenza treatment costs) when a for-profit vaccine supplier has production yield uncertainty, private information about its productivity (adverse selection), and potentially unverifiable production effort (moral hazard). Timeliness is important—costs for both the supplier and the government procurer may increase if part of the vaccine order is delivered after a scheduled delivery date. We theoretically derive the optimal menu of output-based contracts. Next, we present a menu that is optimal within a more restricted set of practically implementable contracts, and numerically show that such a menu leads to near-optimal outcomes. Finally, we present a novel way to eliminate that information rent if the manufacturer’s effort is also verifiable, a counterintuitive result because the manufacturer has private productivity information. This provides an upper bound for the government on how much it should spend to monitor the manufacturer’s effort.
ISSN:0030-364X
1526-5463
DOI:10.1287/opre.2016.1552