Bigger Is Better When It Comes to Vaccine Production

My co-authors, Eric Budish and Chris Snyder, have an excellent piece in the WSJ:

We recently published a paper in the journal Science that aimed to quantify the enormous value of Covid-19 vaccine capacity: both existing and the value of building more. We worked with a team of economists, statisticians and policy experts led by the University of Chicago’s Michael Kremer.

While vaccines are intuitively very valuable, the numbers are mind-boggling. The value of three billion courses of annual vaccine capacity—enough to vaccinate rich countries by the end of 2021 and the world by the end of 2022—is $17.4 trillion, or $5,800 for every course. This reflects the value of getting people back to work and school, avoiding unnecessary deaths and preserving health. If anything, we suspect our figure is conservative.

We estimate that another billion courses of vaccine capacity is worth $1 trillion of additional global benefits, and could accelerate vaccination by two months for rich countries and five months for the world. This $1 trillion—$1,000 for each additional course—would be much higher if the pandemic takes a turn for the worse—if, say, new variants require fresh vaccination or some vaccine manufacturers hit production snags.

Is it physically possible to build more capacity? We don’t know how much more can be built and how quickly, but the global benefits of capacity—$5,800 for every vaccination course overall, and $1,000 for incremental capacity—far exceed the prices paid to firms in deals to date, between $6 and $40 a course. This means that private incentives are a fraction of the social value at stake.

Private incentives may be particularly poor when it comes to speed. Consider a firm that will vaccinate one billion people at a fixed price of $40 each. The firm earns the same $40 billion whether it supplies the billion courses in a single month or stretched over a year. But doing it in a month requires 12 times the capacity costs. If you are wondering why vaccination is taking so long, this is the basic economic reason.

…The recent announcement that Merck will produce the Johnson & Johnson vaccine is a great example of finding a creative way to build more capacity. We don’t have specific production numbers for this deal. But suppose deals like this one could create an additional 40 million courses a month for the U.S., starting in April. Our analysis suggests that such a capacity increase is worth $136 billion to the U.S. and allows Americans to be vaccinated by June instead of August. If this new capacity is donated to the world after the U.S. is finished using it, it would generate more than $500 billion in total global benefits and accelerate global vaccination by nearly three months.

There are also options for stretching what exists: delaying the second of two doses, giving only one dose to those previously infected, or using lower-dose regimens. If it turns out that half doses are almost as effective as full doses, or a single dose is almost as effective as a two-dose course, capacity would effectively double overnight—which our analysis suggests is worth several trillion dollars.