The case for a market allocation of vaccines

Or a partial such allocation, at least.  Here is my latest Bloomberg column:

The renowned economist Erik Brynjolfsson recently asked: “At least so far, I haven’t seen any one suggesting to use the market system to allocate vaccines. Not even those who strongly advocate it in other areas. Why is that?”

As one of several people copied at the bottom of the tweet, I feel compelled to take up the challenge.

I readily admit that a significant portion of the vaccines, when they come, should be allocated by non-market forces to health care workers, “front line” workers, servicemen on aircraft carriers, and so on.  Yet still there is room for market allocation, especially since multiple vaccines are a real possibility:

If you had to choose among those vaccines, wouldn’t it make sense to look for guidance from market prices? They will reflect information about the perceived value of both protection and risk. On the same principle, if you need brain surgery, you would certainly want to know what the brain surgeon charges, although of course that should not be the only factor in your decision.


The market prices for vaccines could be useful for other purposes as well. If scientific resources need to be allocated to improve vaccines or particular vaccine approaches, for instance, market prices might be useful signals.

Note also that the scope of the market might expand over time. In the early days of vaccine distribution, health-care workers will be a priority. Eventually, however, most of them will have access to vaccines. Selling off remaining vaccine doses might do more to encourage additional production than would bureaucratic allocation at a lower price.

Say China gets a vaccine first — how about a vaccine vacation in a nearby Asian locale (Singapore? Vietnam?) for 30k?  Unless you think that should be illegal, you favor some form of a market in vaccines.

In any case, there is much more at the link.  Overall I found it striking how few people took up Erik’s challenge.  Whether or not you agree with my arguments, to me they do not seem like such a stretch.


Well we don't really allocate medical care and the like by actual market forces anyway so why would we start now with vaccines?

There are markets in reputation, too.

If I’m looking at 6 - 7 brain surgeons, and I have the time (non trauma; in trauma cases I guess you get whomever is on duty?) and cognitive ability, I’m going to check out price, qualifications and above all reputation.

When I had to have surgery a few years ago, a nurse I spoke to said this about my surgeon: “I’ve never met him but I assume he’s good because his handwriting is meticulous and his forms are filled in perfectly.” You May take this with a grain of salt, causation wise, but you have to admit it correlates well with competence.

Like Van Halen's brown m&m theroy

Sort of. The band had a lot of advanced equipment with a lot of requirements. They used the brown M&Ms as a competence check, but not an arbitrary one. If they checked the M&Ms and saw no Brown ones, then they could assume a pretty high level of competence from the local promoter. If there were Brown one's then they knew they needed to do a thorough review of the checklist.

JFA nailed it with the first comment. Pricing in medicine, as in higher education, is largely divorced from measures of efficacy, quality, safety, etc. That's why second-tier schools make sure their tuition is roughly equal to tuition at premier institutions - people mistakenly believe that price signals work in education. Big pharma also understands this, and so often an existing drug's price will go up when a new competing drug, with a big marketing budget, is released at an even higher price.

The vast majority of people are going to take the vaccine that their doctor tells them they need, and that insurance covers and is available in their area. For example, in most flu seasons there are trivalent and quadrivalent vaccines available. Where both are available, the latter is usually a little more expensive. People who understand this should clamor for the quadrivalent vaccine. Yet few do, and in the vast majority of areas it's moot point as only one type has been purchased in mass and is available.

You say about prices "They will reflect information about the perceived value of both protection and risk. " That just seems like an act of faith.

The informativeness of price signals is so well established empirically that your choice to disbelieve the possibility is itself an exercise in (blind) faith.

Here’s a related argument based on asymmetric information that you might find more intuitive. Vaccine consumers are better informed about their age and underlying health conditions than is the vaccine supplier, or a government agency ham-handedly trying to allocate doses where the need is highest. Those who know they would benefit more from the vaccine (older, diabetic, with heart problems, etc.) would be willing to pay more for the vaccine, and at a given price, would have higher take-up rates. A recent poll found that only half of respondents would get vaccinated (regardless of price, apparently). Those who responded “yes” are likely older and with more health conditions than those who responded “no.” The market system would surely better allocate doses according to need than a government bureaucracy. Some older patients would be willing to pay double for a double dose, given the need to goose their weakening immune systems, as with “super dose” versions of flu vaccines.

The failure of price signals is also highly highly empirically established, isn't it? It's not a black and white situation as you are claiming. Health care is a credential good. Meaning the average consumer is pretty clueless about what they need and the trade-offs they are making. They rely on advice.

If the vaccines are rationed for a period I would expect that allocation using scientific assessment of risk profiles would beat a me-first policy. This may not be possible in the USA for cultural reasons but it will be done in other places with sane public health systems, i.e. the places that are already beating the US on covid-19.

Yes, vaccines should be distributed according to market prices. Presumably, the people or companies at greatest risk such as health care workers would also be willing to pay the most.

We’ve already seen how government attempts to control the distribution of vital equipment is counterproductive. The PPE shortages exist largely because of the federal government trying to control the distribution of such supplies, effectively making it so that people importing such supplies have a solid chance of the supplies they order getting seized by the government, and thus significantly discouraging the importation of such supplies.

But I doubt market pricing for vaccines will happen. Governments are all going to fight over the vaccine just like they had over PPE with the result that there will be less incentive or ability to produce, and less to go around for everyone.


Moreover, governments - national. state, local - can buy at market price and administer to the poor, much like children are inoculated when they start school. So there is no distributional argument against market price either.

By printing money, governments can pay ten times costs, ie, 90% profits, to ensure efficient market operation, and force limited supply by use of patents to prevent any undesirable leftist building factories to produce more supply than demand.

“ Governments are all going to fight over the vaccine just like they had over PPE ”

Like the Chinese “government “ (they are technically an oligarchic regime) did? In vacuuming whatever PPE they could get while denying human transmission?

Yep, if the rumors are true it's insider trading on steroids -- or on viruses.

Secretly buy up all the vaccines and PPE that you can, especially if there's a futures market because you know that there's about to be a pandemic -- and the rest of the world doesn't know.

Free market libertarians say "who cares, attempts to profit on insider trading or to corner a market or create cartels work only in the short run and do not work in the long run; the vaccine market will return to normal pricing in the long run".

Keynes' quote about what happens to us all in the long run is especially apt in this scenario.

I should add that I suspect than even Brynjolfsson recognizes the limitations of markets in these circumstances, and that he is actually asking where the boundary should be: when and where should we switch to more market-oriented allocation mechanisms? That's a very fair and important question.

Most people here at MR would probably recommend using market mechanisms whenever possible -- and only use alternatives when there is serious market failure.

Having said that, medical goods and services are probably characterized by market imperfections, sometimes serious ones, e.g. this example from Tyler:

"if you need brain surgery, you would certainly want to know what the brain surgeon charges, although of course that should not be the only factor in your decision."

Yes, but how does the consumer use that price information? It can be important to compare that price to their budget constraint (which may be effectively non-existent if they have health insurance).

It can also be important in choosing which brain surgeon to patronize, but how can a consumer make an informed choice there, most will probably assume that the most expensive brain surgeon is the most skilled one.

There are analogies in higher education where if you are a private college, if you set your tuition too low then you will appear not to be a high quality college, i.e. you will appear to be unlike the Harvards and Swarthmores of the higher education market.

Science is defined by experimental reproducibility. Something is "scientific" if it can be replicated by someone else following the same publicized experiment or procedure. The information is publicly disseminated widely and for free so it can be replicated if possible.

So no, information distributed via market prices is not scientific. Subjectivist economics and epistemology are unable to say anything about science.

Does Cowen have a conflict of interest? If a recipient of a Fast Grant produces a vaccine that reaches the market does Cowen have an obligation to disclose if he or any of the funders for Fast Grants have an interest in the recipient/producer or if the producer is obligated to repay the grant? I don't believe that Cowen has a conflict of interest or that Cowen or the funders have a duty to disclose. There, that should take care of that. As for the economic issue, I am conflicted. Getting a vaccine distributed to everyone regardless of the ability to pay helps everyone, from the poorest to the richest among us. On the other hand, using pricing for the distribution can greatly enhance distribution.

I'm surprised there's no mention of the externalities. People with lots of people contact may be the most useful to vaccinate first to avoid them superspreading. But privately, they may not have a high willingness to pay, especially if young.

Quite right. Surely that's the crucial point about many aspects of dealing with an infectious disease. You are quarantined to protect me.

Quite right. But that's separate from financing. To control the externalities, people have to be forced to get vaccinated. Government can pay market price for that. Ain't gonna fly here, though.

You could pay them to be vaccinated. You don't have to strap them to a chair.

The high-impact people for vaccinations are the 20-60 set - likely to be working, likely to be socializing, healthy enough to be out while contagious, healthy enough that the vaccine is likely to work for them, old enough that we can be confident they would actually be contagious if sick.

If there's a big public benefit to them being vaccinated, compensate them for the risk.

Yes, absolutely. That's an alternative to the use of force. Gotta solve the question of principle: Do I have the right to remain virus free, or do you have the right to infect me?

"if you need brain surgery, you would certainly want to know what the brain surgeon charges"

Sure, but there is no correlation between price and quality. In a crisis we can suspend pricing mechanisms for a while, but assuming Covid becomes anther chronic disease like flu, then we should use pricing in the future.


But only after those costly government regulations are eliminated like drug patent monopolies.

In a free market, price equals labor costs: labor of the entrepreneur, labor to build the factory, labor to operate the factory.

Profit is impossible in an efficient market.

Yes, they should be. It's a scarce good. Health care workers first is fine but even then most don't really need it because they don't deal with Covid-19 patients.
However politically, this will look very bad so I think it's a non starter.
Imagine the headlines: "If you're rich and white we have a vaccine for you ".

Let's have a market for vaccines, as long as it takes into account the positive externalities they generate. My guess - any market that does so would result in a negative price to the consumer: we should be paying people to get vaccinated.

Yes, that's an alternative to the use of force. Gotta solve the question of principle: Do I have the right to remain virus free, or do you have the right to infect me?

Note that the people who will presumably be most desperate to get the vaccine will be covered by Medicare.

Oh absolutely, let's arbitrarily insert a market price into this item, which owes its existence to non-market factors, and amidst a variety of market failures, but only after first carving off arbitrary subjective exemptions.

A lot of bleating that "this market is different".

Of course.

"I readily admit that a significant portion of the vaccines, when they come, should be allocated by non-market forces to health care workers, “front line” workers, servicemen on aircraft carriers, and so on. "

Won't all those people already be immune after a year of constant exposure?

In a market scenario, I imagine that many employers would sponsor and encourage vaccination for their employees, partly to reduce risk of business disruption.

Markets can have two good effects 1) get the vaccines to those willing to pay the most (and this is theoretically efficient) and 2) encourage innovation in delivery/production of the vaccine.

My question is whether there truly going to be a market that is capable of innovation for a a vaccine or will the company that develops it have patent rights and therefore a time-limited monopoly. If it's the latter, then the richest people will be allocated the vaccine first and the price won't go down much.

Does it matter that the apparently largest contributors to the spread (and thus threats to keeping the economy open) were the people least likely to afford a price war - retail grocery clerks, meat packers, prison guards, nursing home staff....

Under a pro-market argument, why should front line health care workers get an exemption?

Shadow prices are helpful in a centrally planned economy, and even more helpful yet if there's at least one market left so what we can know the price. Still, I'm interested to understand why Tyler does not point out that market forces would also allocate a scarce vaccine to health care workers. What has happened to the invisible hand of Tyrone?

Perhaps there's an argument to be made on the supply side, but the price as value signifier argument for market allocation (in both the consumer choice and research investment context) seems very weak to me. Especially when the value metric is so singular—sustained effective immunity with minimal side effects—and the product so new, I wouldn't (and in practice don't) trust price as a reliable indicator. Price bias may actually discourage consumers from doing the research necessary to identify the best available vaccine.

The idea should be broached though.

Like everyone here, I have thoroughly enjoyed Tyler's transition through the following phases:

There will be 2 million American dead. Why don't we have enough masks? Ok sure, we have enough masks, but why don't we have enough ventilators? There will be 1.5 million American dead. Why don't we have enough hospital space? Ok sure we are exporting excess ventilators, but why aren't there tests for everyone? There will be 1 million American dead. Sure the hospitals are half-empty, but everything is worse than you think. There will be 750,000 American dead. Sounds like we have plenty of testing, sure, but what about tracing -- don't we have to track the movement of every human everywhere? There are going to be AT LEAST 500,000 American dead. Sure those people are mostly over 82 years old with comorbidities, but why do you hate Grandma? Sure R0 is much lower than I said, but why does Trump suck so much? Yes I know this virus is largely confined to nursing homes in NY, NJ and MA, but doesn't this indicate a failure at the Federal level, and the fact that Trump sucks? There will be at least 300,000 American dead. I can't believe anyone is crazy enough to open up the economy. There will never be a vaccine. There may be a vaccine in 5 years. There may be a vaccine in 2 years. There will be at least 250,000 American dead. There may be a vaccine next year.


How about her wife? Macron/Aghion would protect her.

95% of the vaccine goes to the most vulnerable, 5% is auctioned off to the highest bidder and used to offset/cover the cost of vaccinating the vulnerable.

Aghion is going to die thinking of her mother the seamstress. Who'd even buy 'luxury' in pandemics unless you were Arnault with a few kids all abusing the father - Freud anyone.

I'm retired but I charge 10 euros. French luxury? Another thing that my partner is a passé. She always was one. Who's this pig called Boucheron? Plus this boat 'man's husband - l'administrateur?

The reason why free books sell for almost dix euros.

Who doesn't even speak English? I know his companion languished because of him.

Not to put too fine a point on it, but besides the elderly esp. those with health issues, and front line health workers who are at risk of extensive exposure, the price people will be willing to pay for a vaccine against a disease where they have a 90% chance of no/low impact might not be that high.

So, the vaccine will go to the wealthy, who will bid it up because they can. And retail clerks and meatpackers will say screw it; I'm not sending $700 to some drug company bro.

Thus, in the end, we'll have to turn to the government to allocate this in some way that is strategic towards keeping the economy open. Which is precisely what Tyler was steering towards by granting health care workers exemption off the top.

All the vaccine will go to the wealthy.

Lol. Imagine thinking this is how markets work.

lol imagine trying to claim it’s not

What vaccines in the past have only ever gone to the wealthy? There might be some but they are certainly niche cases.

So history argues against your point.

What vaccine in the past has been distributed at market pricing for a rare urgent commodity?

so many morons.

"so many morons."

You have weak arguments so you rely on childish insults.

If the scenario means competing vaccines, you might need a market to decide who gets which, because of other factors that could influence the price of production and delivery. Otherwise, it's a monopoly, and should be regulated by government intervention. Must everything be made complex in arguments about markets?

about delayed side effects, like death, can we plan distribution around maintaining a human breeding stock? Much more interesting debate on who should be included.

There seems to be a sizable portion of the right that already believe the vaccine is part of a Gates plot to thin the herd. So we can safely assume that distribution to optimize breeding stock is already factored that in.

This raises an interesting question: if Gates controls the vaccine, and Gates is a liberal super criminal, will Trump get a dose?

I know! Trump should get, must get, a FAKE dose. It's too poetic to not be true.

In all seriousness, the idea of a vaccine rushed to market is horrifying from a side effect perspective. We already know Tyler wants to abolish the FDA and CDC and get them out of the way with their annoyances likes safety (of the proven variety). So that does rather add to the question of what's the price elasticity for a poorly tested vaccine against a mostly harmless virus. I believe the price appetite for the flu vaccine is, um, zero.

We already know Tyler wants to abolish the FDA and CDC and get them out of the way with their annoyances likes safety (of the proven variety)

Parody, alt anonymous account, or disorganized schizophrenia? The world may never know

you can tell its me because i’ve got my own personal drop kick dog

The world will never care about knowing.

Simple rule- if you are an essential worker who can't work from home, then you get to go to the front of the line.

If you are working from home, tough shit.

This vaccine strikes me as a pretty valuable public good. The US has probably already had economic costs 10x the costs of vaccinating the entire population.

So, yeah, just give everybody a "free shot" on the governments dime. This is not a case where it makes sense to worry about market allocation.

Community wide protection against COVID 19 is the best definition of a public good that I can think of. If it's possible to eliminate the virus from circulation, regardless of who has it, that's a fantastic outcome and the payoff from that is enormous. And leaving unvaccinated regions with the virus is in nobodies interest, even if they live in countries which you would typically think are your enemies.

I can't even begin to think why a market allocation here is sensible. I think you're far better off with a wholesale purchase of the vaccine and free distribution to anyone who wants it. That is in a way, a market allocation mechanism too: if a government (or many governments) is willing to pour cash into buying the rights to a vaccine, that's an incentive to figure out how to do it again in the future.

If the Chinese get the first vaccine it will resemble the Oxford vaccine or one of the American pharma ones in the same way that the new Chinese fighter bomber resembles the F-35.

The claim that voluntary allocation to e.g. health care frontline workers is NOT 'market forces' is bizarre, and why in my experience many Libertarians are leery of Tyler Cowen.

Vaccines are rarely 100% effective. They are only useful if just about EVERYONE in the community gets vaccinated. That's why we have measles cases killing people every so often, even though we have a pretty good vaccine. If we were sensible, we'd allocate it first to people who have to go to work and can't work from home.

Then again, I was against paying for military protection back in the 1960s. I had no problem with a North Vietnamese invasion. Why should I have to pay for the war? If we had lost, we'd have been able to deal with COVID-19 as an occupied province better than we have with our current leadership. Where were the libertarians and rational economists then?

If enough people convert to anti-vaxxism, I can get vaccinated for pennies!

Seriously, most people outside NYC are still thinking of CoViD-19 as a disease that will infect other people, not them. (See Ryan's comment 55.) So as long as herd immunity is reached somehow, they're in no hurry to pay, except for a few who want to engage in risky behaviour without being on the front lines.

Meat-packing companies should bid high for vaccines.

This sounds like a great argument against a normal market mechanism for distributing a vaccine to me!

The same logic which dictates that a meat packing company should bid high for a vaccine would presumably apply to an even larger organisation of people who are economically sensitive to outbreaks, no? Like an airline perhaps, or a tourism dependent town or country, or a health insurer looking to vaccinate its customers, or a government?

I mean honestly, if you weren't in NYC or in a long-term care facility you weren't at risk.

I am 26, I don't live near my parents or grandparents, my roommates are in their 30s - my coworkers all either are accepting the risk or are young.

I am NOT going to take the first attempt at a vaccine, I'll wait a few years until its been tried and tested.

I WOULD do one of those 'human challenge' trials where its a 'measles' like party and then let them study me, but I'm NOT going to be the first to try something new.

I think you are all ignoring the impact of government regulation that distorts the market. If we had not banned perpetual servitude the market would better respond to the distribution of the vaccine as people could contract themselves or their children into perpetual servitude thus allowing the counterparties to invest in their longer-term survival which would allow the market to better respond and allocate the vaccine.

what an article

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