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The Tremendous Success of Operation Warp Speed

I am annoyed at Fauci for the second time, this time for dissing the AZ vaccine:

But even if the vaccine ends up being approved, it will probably only have an efficacy of 60 to 70 percent. “What are you going to do with the 70 percent when you’ve got two (vaccines) that are 95 percent? Who are you going to give a vaccine like that to?” Anthony Fauci, the leading American expert on vaccines, recently wondered.

This attitude is counter-productive. As I wrote earlier:

In the big picture, the efficacious of a vaccine doesn’t matter per se what matters is getting to herd immunity. If you have a less efficacious vaccine you need to vaccinate more people but herd immunity is herd immunity, i.e. vaccines mostly protect people not because they are efficacious but because we reach herd immunity.

As a result, it can be much better to start vaccinating now with a 70% efficacious vaccine than wait for a 95% efficacious vaccine–thus, we need to encourage early vaccination. Indeed the AZ vaccine ought to be approved immediately (I predict the UK will approve by next week) and be made available to anyone who doesn’t want to wait for another vaccine.

For the next year or two, we will be operating under conditions of scarcity and we need to use every tool at our disposal. A 70% effective vaccine is great, well above what the FDA required and better than the flu vaccine. If you live in a country in which everyone has been vaccinated you won’t give a damn whether they were vaccinated with a 95% effective vaccine or a 70% effective vaccine–both will give you nearly 100% safety and allow life to return to normal.

The case for going big is still strong

Since back in April, Michael Kremer, myself, and the AHT team have been advising governments to go big on investing in vaccines. The US, to its credit, made early purchases but they made two mistakes. First, they didn’t buy enough as the Washington Post indicates:

Last summer, Pfizer officials had urged Operation Warp Speed to purchase 200 million doses, or enough of the two-shot regimen for 100 million people, according to people knowledgeable about the issue who spoke on the condition of anonymity because they weren’t authorized to discuss the situation. But the Warp Speed officials declined, opting instead for 100 million doses, they said.

“Anyone who wanted to sell us … without an [FDA] approval, hundreds of millions of doses back in July and August, was just not going to get the government’s money,” said a senior administration official.

But last weekend, with an FDA clearance expected any day, federal officials reached back out to the company asking to buy another 100 million doses. By then, Pfizer said it had committed the supply elsewhere and suggested elevating the conversation to “a high level discussion,” said a person familiar with the talks who spoke on the condition of anonymity because they were not authorized to share the conversation.

In our discussions, we were talking about at least a $70 billion dollar program and optimally double that and we continually faced the sticker shock problem. Investing in unapproved vaccines seemed risky to many people despite the fact that the government was spending trillions on relief and our model showed that spending on vaccines easily paid for itself (the mother of multipliers!). I argued that this was the world’s easiest cost benefit calculation since Trillions>>Billions. But it was hard to motivate more spending—not just in the United States but anywhere in the world. For reasons I still don’t understand anything out of the ordinary–big spending on at-risk vaccines, spending on testing and tracing, challenge trials–was met with a kind of apathy and defeatism. As I said in July:

Multiple people [in Congress] have told me that things move slowly, no one is stepping up to the plate, leadership is absent. “Who is John Galt?,” they sigh. Ok, they don’t literally say that, but that sigh of resignation is what it feels like in the United States today at the highest levels of government.

OWS was actually the one area where there was some action. But there was a second mistake. We argued that governments shouldn’t buy doses but capacity, i.e. they should cover the cost of building a factory or production line in return for an option on doses from that line. The problem with buying doses is that if you buy without a timeline then the company takes all orders and pushes the low-priced orders to the back of the queue. If you demand a timeline, however, that puts a lot of risk on the firms, since not everything is under their control, and that’s expensive and difficult to contract for and monitor. Thus, we advocated for push funding to de-risk capacity construction for the firms. Capacity construction is well understood–double this line–and thus much easier to contract for and monitor. (Contracting on capacity is also cheaper than a traditional AMC for reasons explained here and also in my discussion with Tyler here.) The nice thing about buying capacity is that it changes the dynamic from one where countries are scrambling to buy before others do to one where early purchases increase capacity that is later available for everyone. OWS, to its credit, did fund capacity construction for Moderna but we wanted more and other governments didn’t step up to the plate.

OWS has been a success. In combination with investments from other governments and organizations like CEPI it will save trillions of dollars and many lives. It could have been better but the main takeaway is that the case for going big is still strong. We have solved the scientific problem of making the vaccine but step two is getting billions of doses in arms. If we can increase capacity enough to vaccinate millions more people next year than currently planned that would still pay for itself many times over. Increasing capacity is not impossible. China is increasing capacity for its vaccines. It will be harder to increase capacity for mRNA vaccines since the technology is new and bespoke but it can be done. We need a second Operation Warp Speed, OWS: Delivery and Distribution.

As Tyler said yesterday, Williams wants a cow! We want billions of vaccine doses quickly. It can be done, it should be done.

The case for geographically concentrated vaccine doses

Here goes:

A central yet neglected point is that vaccines should not be sent to each and every part of the U.S. Instead, it would be better to concentrate distribution in a small number of places where the vaccines can have a greater impact.

Say, for the purposes of argument, that you had 20,000 vaccine doses to distribute. There are about 20,000 cities and towns in America. Would you send one dose to each location? That might sound fair, but such a distribution would limit the overall effect. Many of those 20,000 recipients would be safer, but your plan would not meaningfully reduce community transmission in any of those places, nor would it allow any public events to restart or schools to reopen.

Alternatively, say you chose one town or well-defined area and distributed all 20,000 doses there. Not only would you protect 20,000 people with the vaccine, but the surrounding area would be much safer, too. Children could go to school, for instance, knowing that most of the other people in the building had been vaccinated. Shopping and dining would boom as well.

Here is one qualifier, but in fact it pushes one further along the road to geographic concentration:

Over time, mobility, migration and mixing would undo some of the initial benefits of the geographically concentrated dose of vaccines. That’s why the second round of vaccine distribution should go exactly to those people who are most likely to mix with the first targeted area. This plan reaps two benefits: protecting the people in the newly chosen second area, and limiting the ability of those people to disrupt the benefits already gained in the first area.

In other words, if the first doses went (to choose a random example) to Wilmington, Delaware, the next batch of doses should go to the suburbs of Wilmington. In economics language [behind this link is a highly useful Michael Kremer paper], one can say that Covid-19 infections (and protections) have externalities, and there are increasing returns to those externalities. That implies a geographically concentrated approach to vaccine distribution, whether at the federal or state level.

Here is another qualifier:

…there will be practical limits on a fully concentrated geographic distribution of vaccines. Too many vaccines sent to too few places will result in long waits and trouble with storage. Nonetheless, at the margin the U.S. should still consider a more geographically concentrated distribution than what it is likely to do.

Do you think that travel restrictions have stopped the spread of the coronavirus? (Doesn’t mean you have to favor them, all things considered.)  Probably yes.  If so, you probably ought to favor a geographically concentrated initial distribution of the vaccine as well — can you see why it is the same logic?  Just imagine it spreading out like stones on a Go board.

Of course we are not likely to do any of this.  Here is my full Bloomberg column.

Where We Stand

There is good news and there is bad news.

Let’s start with the good news.The early results from the Pfizer vaccine are very good, 90% efficacy. That will probably fall a bit but it’s very good news not just for the Pfizer vaccine but for most of the vaccines in the pipeline which target the spike protein.

The Pfizer vaccine does require very cold storage which means it won’t work for large parts of the world. A distribution plan is in place for most of the United States and Pfizer already has 50 million doses, which can cover ~25 million people, in storage.

Many thousands of people are dying every week so Pfizer should apply for and the FDA should issue a EUA without further delay.

One issue is, given limited supply, how to distribute the vaccine. I have suggested we randomize distribution across hospitals, police and fire stations, and nursing homes (see also my piece in Bloomberg with Scott Kominers, The Case for a COVID Vaccine Lottery.) A vaccine lottery is fair, it will make distribution easier by limiting the number of vaccination locations and it will in essence create a very large clinical trial. With millions of participants we will be better able to make fine distinctions between the vaccine’s safety and efficacy in different populations and the results will come in quickly. Thus, if we randomize and collect data, limited capacity has a silver lining.

Second issue. Manufacturing capacity. Pfizer will have enough capacity to produce 1.3 billion doses in 2021 which sounds like a lot but it’s a two dose vaccine and there will be losses in distribution so maybe 500 million people vaccinated. We need to vaccinate billions.

The cost to the world economy of COVID is in the trillions so we want to vaccine a lot faster. Faster than private markets are willing to go. There are other vaccines in the pipeline but we still need to ramp up capacity. Increasing capacity is something that Michael Kremer, Susan Athey, myself and others at Accelerating Health Technologies have been working on since the beginning of the crisis. It’s not too late to do more.

Third issue is testing. Trump got it into his head that more tests means more cases when in fact a lot more tests means fewer cases. There is a Laffer curve for testing. Our failure to get ahead of the virus with tests has meant hundreds of thousands of excess deaths. We are still failing this test. Winter is coming. Infections and deaths are both rising.

Biden won’t be president until late January but there are things he can do now. In particular, Congress already allocated $25 billion to testing in April—that was far too little. We spent trillions on relief and comparatively little fighting the virus. But here is the real shocker, most of the $25 billion allocated in April hasn’t been spent. Let me say that again, most of the money allocated for testing in April has not been spent. Biden can signal today that that money and more will be spent. He can also signal, as in fact he has, that he wants rapid antigen tests approved.

Rapid antigen tests are cheap, paper strip tests that can check for infectiousness and are ideal to getting things like the schools running again.

Even if we start vaccinating this year, we won’t vaccinate a majority of the US population until well into 2021. That’s true but what’s underappreciated is that testing, masks, social distancing and vaccines are complementary. The more people are vaccinated, for example, the greater our testing capacity rises relative to the population at risk.

The pandemic is getting worse not better but we did flatten the curve, albeit imperfectly, and now if we can summon the will, we have the tools including rapid antigen tests, vaccines and monoclonal antibodies to really crush the virus.

Fight the Virus! Please.

One of the most confounding aspects of the pandemic has been Congress’s unwillingness or inability to spend to fight the virus. As I said in the LA Times:

If an invader rained missiles down on cities across the United States killing thousands of people, we would fight back. Yet despite spending trillions on unemployment insurance and relief to deal with the economic consequences of COVID-19, we have spent comparatively little fighting the virus directly.

Economists Steven Berry and Zack Cooper have run the numbers:

By our calculations, less than 8 percent of the trillions in funding that Congress has allocated so far in response to the virus has been for solutions that would shorten or mitigate the virus itself: measures like increasing the supply of PPE, expanding testing, developing treatments, standing up contact tracing, or developing a vaccine. A case in point is the most recent House Covid-19 package. It calls for $3 trillion in spending; less than 3 percent of that total is allocated toward Covid testing. As Congress considers next steps, it’s imperative to shift priorities and direct more funding and effort toward actually ending the pandemic.

Berry and Copper point to the vaccine plan that I am working on as an example of smart spending:

…a group of prominent economists, including Nobel Laureate Michael Kremer, has proposed spending a $70 billion dollar vaccine effort. The proposed expenditure is both much larger than anything proposed by the White House or Congress and also quite cheap compared to the potential benefits.

…[Similarly] Nobel Laureate Paul Romer and the Rockefeller Foundation have each sketched out $100 billion plans to increase testing. We say: Let’s fund both, allocating half the funds directly to states, who can spend to activate the vast capacity of university labs, and also fund Romer’s plan to scale up $10 instant tests for true mass testing. We could create a $50 billion dollar challenge prize that rewards the first 10 firms that develop effective treatments for Covid-19 — $5 billion each. We could fund Scott Gottlieb and Andy Slavitt’s bipartisan $50 billion contact tracing proposal. We could allocate $100 billion to fund the libertarian leaning Mercatus Center’s proposal for advanced purchase contracts to procure massive quantities of PPE.

What makes this all the more confounding is that spending to defeat the virus will more than pay for itself! As I said in my piece in the Washington Post (with Puja Ahluwalia Ohlhaver):

Economists talk about “multipliers” — an injection of spending that causes even larger increases in gross domestic product. Spending on testing, tracing and paid isolation would produce an indisputable and massive multiplier effect.

Who gains by killing the economy and letting people die? Yes, it’s possible to spin some elaborate conspiracy about someone, somewhere benefiting. But in talking with people in Congress the message I hear is not that there’s a secret cabal with a special interest in economic collapse and dying constituents. In a way, the message is worse. Multiple people have told me that things move slowly, no one is stepping up to the plate, leadership is absent. “Who is John Galt?,” they sigh. Ok, they don’t literally say that, but that sigh of resignation is what it feels like in the United States today at the highest levels of government.

Tim Harford on Catastrophe and Innovation

Tim Harford has an excellent piece in the Financial Times that covers my work with the Kremer team on accelerating vaccines but weaves it into a larger panorama on the innovation slowdown and how barriers to innovation can sometimes break down with catastrophes.

There is no guarantee that a crisis always brings fresh ideas; sometimes a catastrophe is just a catastrophe. Still, there is no shortage of examples for when necessity proved the mother of invention, sometimes many times over.

The Economist points to the case of Karl von Drais, who invented an early model of the bicycle in the shadow of “the year without a summer” — when in 1816 European harvests were devastated by the after-effects of the gargantuan eruption of Mount Tambora in Indonesia. Horses were starved of oats; von Drais’s “mechanical horse” needed no food. It is a good example. But one might equally point to infant formula and beef extract, both developed by Justus von Liebig in response to the horrifying hunger he had witnessed in Germany as a teenager in 1816.

Read the whole thing. I also highly recommend, Tim’s new book, The Next Fifty on how seemingly simple things like the brick changed the world.

Fight the Virus!

I was asked by the LATimes to contribute to a panel on economic and pandemic policy. The other contributors are Joseph E. Stiglitz, Christina Romer, Alicia H. Munnell, Jason Furman, Anat R. Admati, James Doti, Simon Johnson, Ayse Imrohoroglu and Shanthi Nataraj. Here’s my contribution:

If an invader rained missiles down on cities across the United States killing thousands of people, we would fight back. Yet despite spending trillions on unemployment insurance and relief to deal with the economic consequences of COVID-19, we have spent comparatively little fighting the virus directly.

Testing capacity has slowly increased, but where is the national program to create a dozen labs each running 200,000 tests a day? It’s technologically feasible but months into the crisis, we have only just begun to spend serious money on testing.

We haven’t even fixed billing procedures so we can use the testing capacity that already exists. That’s right, labs that could be running tests are idle because of billing procedures. And while some parts of our government are slow, the Food and Drug Administration seems intent on reducing America’s ability to fight the virus by demanding business-as-usual paperwork.

Operation Warp Speed is one of the few bright spots. Potential vaccines often fail and so firms will typically not build manufacturing capacity, let alone produce doses until after a vaccine has been approved. But if we follow the usual procedure, getting shots in arms could be delayed by months or even years.

Under Operation Warp Speed, the government is paying for capacity to be built now so that the instant one of 14 vaccine candidates is proven safe and effective, production will be ready to go. That’s exactly what Nobel-prize winning economist Michael Kremer, Susan Athey, Chris Snyder and I have recommended. It might seem expensive to invest in capacity for a vaccine that is never approved, but it’s even more expensive to delay a vaccine that could end the pandemic.

Relief payments can go on forever, but money spent on testing and vaccines has the potential to more than pay for itself. It’s time to fight back.

Alex Tabarrok is a professor of economics at George Mason University and a member of the Accelerating Health Technologies With Incentive Design team.

My point about not fighting the virus directly was illustrated by many of the other panelists. Joseph Stiglitz, Christina Romer, Alicia Munnell, Jason Furman, James Doti, and Shanthi Nataraj say nothing or next to nothing about viruses. Only Anat Admati, Simon Johnson, Ayse Imrohoroglu get it.

Admati supports a Paul Romer-style testing program:

Until effective vaccines and therapies are available, which may be many months away, our best approach is to invest heavily in increasing the capacity for testing many more people and isolating those infected.

Simon Johnson argues, in addition, for antibody tests (not the usual PCR tests):

Policymakers should go all-in on ramping up antibody testing, to determine who has been exposed to COVID-19. Such tests are not yet accurate enough to determine precise immunity levels, but the work of Michael Mina, an immunologist and epidemiologist at Harvard, and others demonstrates that using such tests in the right way generates not just information about what has happened but, because of what can be inferred about underlying disease dynamics, also the information we need to understand where the disease will likely next impact various local communities.

Imrohoroglu advocates for targeted lockdown:

In addition to CDC recommendations about social distancing and public health strategies for all, I believe that as we reopen, we should keep a targeted lockdown policy in place for at-risk groups.

AcceleratingHT

I’ve been working with Michael Kremer, Susan Athey, Chris Snyder and others to design incentives to speed vaccines and other health technologies. AcceleratingHT is our website and now features a detailed set of slides which explain the calculations behind our global plan. The global plan is similar in style to the US plan although on a larger scale. The key idea is that the global economy is losing $350 billion a month so speed pays. One way to speed a vaccine is to invest in capacity for 15-20 vaccine candidates before any candidates are approved, so that the moment a candidate is approved we can begin production (one can store doses in advance of approval). Most of the capacity will be wasted but that is a price worth paying. As Larry Summer says if you will die of starvation if you don’t get a pizza in two hours, order 5 pizzas. Human challenge trials are another way to speed the process.

A global plan is ideal since there are significant benefits to coordination. If each country invests in vaccines independently they will each choose the vaccine candidates most likely to succeed but that means all our eggs are a few baskets. There are over 100 vaccine candidates and they have different scientific and production risks so you want to choose the 15-20 which maximize the probability of success for the portfolio as a whole. To do that efficiently you need countries to agree that ‘I will invest in lots of capacity (more than I need) in candidate X if you invest in lots of capacity (more than you need) for candidate Y’, even knowing that the probability that X succeeds may be less than that of Y.

Vaccine nationalism is making a global plan look unlikely but if each country invests in multiple candidates around the world, as Operation Warp Speed is doing, and if each country guarantees to uphold contracts, we can reach a similar solution.

At AcceleratingHT you can also find our Incentive Design App which computes the optimal vaccine program given user chosen parameters. A big shout out to Juan Camilo Castillo, a newly graduated PhD student from Stanford, who put in a lot of heavy lifting on the app. We have been working on these models under time pressure and I will never forget the late night/early morning zoom calls where Michael Kremer would call out, “I think we need to take into account factor X. What effect would that have?” and Camilo would respond “Give me 5 minutes!” and, as we debated other factors Y and Z, Camilo would hack-away changing parameters and rewriting code till he had an answer. Hire a rising star while you can!

Every Stock is a Vaccine Stock

Barrons: General Electric stock was racing higher Tuesday, but not because of anything the company did or announced. Recent Covid-19 vaccine news is serving as a catalyst, and every stock these days feels like a vaccine stock.

Indeed, every stock is a vaccine stock. When vaccines or other treatments do well, all stocks do well which is why stock prices are now highly correlated:

Bloomberg: From beginning the year with a correlation of 0.19, the gauge of how closely the top stocks in the S&P 500 move in relation to one another spiked to 0.85 in mid-March, toward the peak of the coronavirus sell-off before leveling off around 0.8. A maximum possible correlation of 1.0 would signify all stocks are moving in lockstep.

It’s not surprising that when Moderna reports good vaccine results, Moderna does well. It’s more surprising that Boeing and GE not only do well they increase in value far more than Moderna. On May 18, for example, when Moderna announced very preliminary positive results on its vaccine it’s market capitalization rose by $5b. But GE’s market capitalization rose by $6.82 billion and Boeing increased in value by $8.73 billion.

A cure for COVID-19 would be worth trillions to the world but only billions to the creator. The stock market is illustrating the massive externalities created by innovation. Nordhaus estimated that only 2.2% of the value of innovation was captured by innovators. For vaccine manufacturers it’s probably closer to .2%.

Who can internalize the externalities? Moderna clearly can’t because if they could then on May 18 Moderna would have increased in value by $20.52b ($4.97b+$6.82b+$8.73b) and GE and Boeing wouldn’t have gone up at all. Massive externalities.

A clever institutional investor like Blackrock or Vanguard could internalize some of the externalities by encouraging Moderna to work even faster and invest even more, even to the extent of lowering Moderna’s profits. Blackrock would more than make up for the losses on Moderna by bigger gains on other firms in its portfolio. Blackrock does indeed understand the incentives, although its unclear how much beyond jawboning they can actually do, legally.

I’d like to see more innovation in mechanisms to internalize externalities–perhaps in a pandemic vaccine firms should be given stock options on the S&P 500. Until we develop those innovations, however, the government is the best bet at internalizing the externality by paying vaccine manufacturers to increase capacity and move more quickly than their own incentives would dictate. Billions in costs, trillions in benefits.

Vaccines: Billions in Costs, Trillions in Benefits

Bloomberg: As sections of the global economy tip-toe toward reopening, it’s becoming clearer that a full recovery from the worst slump since the 1930s will be impossible until a vaccine or treatment is found for the deadly coronavirus.

Consumers will stay on edge and companies will be held back as temperature checks and distancing rules are set to remain in workplaces, restaurants, schools, airports, sports stadiums and more.

China — the first major economy consumed by the virus and the first to emerge on the other side — has been able to revive production but not demand. The lesson for other economies: it’ll be a stop-start path back toward normal.

There’s also the risk of new flare-ups. Some 108 million people in China’s northeast region have been put back under varying degrees of lockdown amid a new cluster of infections. Doctors there are also seeing the coronavirus manifest differently, suggesting that it may be changing in unknown ways.
In South Korea – where the virus was controlled without a hard lockdown – consumer spending remains weak as infections continue to pop up.

…Harvard University professor Carmen Reinhart, who is the incoming chief economist of the World Bank, had a similar message. “We’re not going to have something akin to full normalization unless we (a) have a vaccine and (b) — and this is a big if — that vaccine is accessible to the global population at large,” she told the Harvard Gazette.

The virus is being beaten back and there are reasons for optimism but I agree with Reinhart that we won’t get full normalization without a vaccine. The world economy is on the order of $90 trillion and the IMF is projecting a 3% decline instead of an expected 3.3% increase so a loss to the world economy of around $6 trillion in 2020. Growth will probably return in 2021 and there will be some catchup but the IMF projects a cumulative loss of 9 trillion. Ending the pandemic early could generate hundreds of billions, even trillions, in output–that’s why Susan Athey, Nobel laureate Michael Kremer, Chris Snyder and myself advocate for going big on vaccines. It’s billions in costs and trillions in benefits. Warp speed ahead!

Human Challenge Trials

What if we develop a vaccine for COVID-19 but can’t find enough patients to run a randomized clinical trial? It sounds absurd, but this problem has happened in the past. Ebola was identified in 1976, and candidate vaccines were proven safe and effective in mice and primates in 2004 and 2005, respectively. But no human vaccine was produced [at that time] because it was extremely difficult, bordering on impossible, to trial an Ebola vaccine. The problem? Ebola is so deadly that people take precautionary measures long before a vaccine can be tested.

A few pieces have been written about human challenge trials, clinical trials in which healthy people are infected with a disease in order to see if a treatment or vaccine works, but most of them focus on the ethical issues. I don’t think there are serious ethical issues so writing at The National Interest I focus on why challenge trials are useful statistically and why they may even be necessary.

Even health care workers, however, have a low enough infection rate that you either need many months to determine if there is a significant effect, or you need large populations. In Italy, about 6,000 doctors were infected over two months, out of a population of about 241,000 Italian doctors. This is a monthly infection rate of 1.2 percent. If the vaccine is 50 percent effective, then to detect this within a month, you need a sample size of 7,776 people equally divided between a vaccinated group and a non-vaccinated group. You could run the test in a smaller sample of 1,322 but then the trial would take six months. A more effective vaccine would make detecting an effect easier, but flu vaccines work at 40 to 60 percent effectiveness, so an assumption of 50 percent is not unreasonable.

But will Italian doctors still be getting infected at a rate of 1.2 percent per month when a vaccine becomes available for trial in six months or a year? We hope not. The hope is that social distancing and the use of personal protective equipment will have greatly lowered the infection rate. A low infection rate is great, unless you want to properly test a vaccine.

…The virtue of a challenge trial is that the results would be available very quickly, within a few weeks, and using only a small population. If the vaccine is 50 percent effective, for example, then we would need around 100 volunteers or perhaps even fewer depending on how many people exposed to the virus in laboratory conditions contract the disease.

By advancing a vaccine by many months, a challenge trial could save many thousands of lives and spare the world the huge economic costs of the lockdowns and social distancing that we will be using to combat the virus.

Challenge trials, however, don’t solve all problems. In particular, to limit the risk we would want to restrict the patients in a challenge trial to be young and healthy. But that raises a problem of external validity. We also want the vaccine to be safe and effective in less healthy and elderly people which requires secondary challenge trials or field testing in that population. Nevertheless, as Athey, Kremer, Synder and myself argue in our NYTimes op-ed, the high risk of vaccine failure means that we would like 15-20 vaccine candidates and challenge trials could help us whittle this number down to the best two to three substantially speeding up the vaccine discovery process.

One more point is worth bearing in mind.

[A]n ordinary vaccine trial is not without risk—a vaccine could backfire and make the disease worse—so exposing fifty or so volunteers to the virus in a challenge trial must be balanced against exposing thousands to a potentially dangerous vaccine in an ordinary clinical trial.

Thus, the total risk may be lower with a combination of challenge trials and longer, larger field trials.

Challenge trials have a long history in medicine and their statistical advantages make them powerful and even necessary. As The Guardian notes:

Scientists, however, increasingly agree that such trials should be considered, and the WHO is the latest body to indicate conditional support for the idea.

“There’s this emerging consensus among everyone who has thought about this seriously,” said Prof Nir Eyal, the director of Rutgers University’s Center for Population-Level Bioethics in the US.

In the Race for a Coronavirus Vaccine, We Must Go Big

Today in the New York Times I have an op-ed with Susan Athey, Michael Kremer and Christopher Snyder. We argue for a big program to invest in vaccine capacity before any vaccine is tested and approved. We agree with Bill Gates that we want the vaccine factories to be warmed up by the time a vaccine is approved. We can’t leave it all to Gates, however. The US economy is hemorrhaging $150-$350 billion a month so the benefits of a vaccine to society are huge and we should go big.

Today, the U.S. government could go big and create a Covid-19 vaccine A.M.C., guaranteeing to spend about $70 billion on new vaccines — enough to make direct investments to support capacity installation or to repurpose capacity and to pay, say, $100 per person for the first 300 million people vaccinated.

An investment of that size can anticipate and overcome several challenges typical of vaccine development. If we want to achieve a 90 percent probability of success, we must take into account historical rates of success from publicly available data; doing that suggests that we need to actively pursue not two or three vaccine candidates, but 15 to 20.

…Usually, to avoid the risk of investing in capacity that eventually proves worthless, firms invest in large-scale capacity only after the vaccine has proved effective. But in the middle of a pandemic, there are huge social and economic advantages to having vaccines ready to use as soon as they have been approved. If we leave it entirely to the market, we will get too little vaccine too late.

An advance market commitment for Covid-19 should combine “push” and “pull” incentives. The “pull” incentive is the commitment to buy 300 million courses of vaccine at a per-person price of $100, for vaccines produced within a specified time frame. If multiple vaccines are developed, the A.M.C. fund will have authority to choose products to purchase based on efficacy, the availability of sufficient vaccine for timely vaccination or suitability for different population groups. So firms compete to serve the first 300 million people with the most attractive vaccines, and the “pull” component provides strong incentives for both speed and quality.

The “push” incentive guarantees firms partial reimbursement for production capacity built or repurposed at risk and partial reimbursement as they achieve milestones. The partial reimbursement ensures that manufacturers have “skin in the game,” while inducing them to build large-scale capacity before approval is certain.

More than usual, read the whole thing and please do help to circulate the ideas by posting and tweeting.

The op-ed draws on the work of a large team of economists and statisticians who have been working days and nights for weeks. You can find out more at AcceleratingHT where we will soon be posting additional analysis and tools.

It’s a great privilege for me to be working with this group. One day I will write the story but for now let me just say that I have never seen such a brilliant and dedicated group come together to apply their skills to a problem of such importance and urgency.

The Advance Market Commitment

NBER: Ten years ago, donors committed $1.5 billion to a pilot Advance Market Commitment (AMC) to help purchase pneumococcal vaccine for low-income countries. The AMC aimed to encourage the development of such vaccines, ensure distribution to children in low-income countries, and pilot the AMC mechanism for possible future use. Three vaccines have been developed and more than 150 million children immunized, saving an estimated 700,000 lives. This paper reviews the economic logic behind AMCs, the experience with the pilot, and key issues for future AMCs.

That’s Kremer, Levin and Snyder. Definitely deserving of a Nobel and kudos to Bill and Melinda Gates for being early and major supporters.

My spring 2020 Industrial Organization reading list and syllabus

It is long, do note that many topics are covered in the other half of the class, I tried to put this beneath the fold, but today WordPress software is not cooperating…

  1. Productivity

American Economic Review Symposium, May 2010, starts with “Why do Firms in Developing Countries Have Low Productivity?” runs pp.620-633.

Nicholas Bloom, Raffaella Sadun, and John Van Reenen, “Recent Advances in the Empirics of Organizational Economics,” http://cep.lse.ac.uk/pubs/download/dp0970.pdf.

Serguey Braguinsky, Lee G. Branstetter, and Andre Regateiro,The Incredible Shrinking Portuguese Firm,” http://papers.nber.org/papers/w17265#fromrss. 

Bloom, Nicholas, Raffaella Sadun, and John Van Reenen. “Management as a Technology?” National Bureau of Economic Research working paper 22327, June 2016.

David Lagakos, “Explaining Cross-Country Productivity Differences in Retail Trade,” Journal of Political Economy, April 2016, 124, 2, 1-49.

Dani Rodrik, “A Surprising Convergence Result,” http://rodrik.typepad.com/dani_rodriks_weblog/2011/06/a-surprising-convergence-result.html, and his paper here http://www.hks.harvard.edu/fs/drodrik/Research%20papers/The%20Future%20of%20Economic%20Convergence%20rev2.pdf

Tyler Cowen, The Complacent Class, chapter four, “Why Americans Stopped Creating,” 2017.

Ufuk Akcigit and Sina T. Ates, “Ten Facts on Declining Business Dynamism and Lessons from Endogenous Growth Theory,” NBER working paper 25755, April 2019.

Syerson, Chad “What Determines Productivity?” Journal of Economic Literature, June 2011, XLIX, 2, 326-365. 

Michael Kremer, “The O-Ring Theory of Economic Development,” Quarterly Journal of Economics, August 1993, 108, 3, 551-575.

Song, Jae, David J. Price, Fatih Guvenen, and Nicholas Bloom. “Firming Up Inequality,” Federal Reserve Bank of Minneapolis working paper 750, April 2018.  Do not bother with the very long appendix.

Nicholas Bloom, Raffaella Sadun, and John Van Reenen, the slides for “Americans do I.T. Better: US Multinationals and the Productivity Miracle,” http://www.people.hbs.edu/rsadun/ADITB/ADIBslides.pdf, the paper is here http://www.stanford.edu/~nbloom/ADIB.pdf but I recommend focusing on the slides. 

Tyler Cowen and Ben Southwood, “Is the rate of scientific progress slowing down?”, https://docs.google.com/document/d/1cEBsj18Y4NnVx5Qdu43cKEHMaVBODTTyfHBa8GIRSec/edit 

Patrick Collison and Michael Nielsen, “Science is Getting Less Bang for its Buck,” Atlantic, November 16, 2018, https://www.theatlantic.com/science/archive/2018/11/diminishing-returns-science/575665/ 

Decker, Ryan and John Haltiwanger, Ron S. Jarmin, and Javier Miranda. “Where Has all the Skewness Gone?  The Decline in High-Growth (Young) Firms in the U.S. National Bureau of Economic Research working paper 21776, December 2015.

Furman, Jason and Peter Orszag. “A Firm-Level Perspective on the Role of Rents in the Rise in Inequality.” October 16, 2015.

 

2. Competition and monopoly

Bresnahan, Timothy F. “Competition and Collusion in the American Automobile Industry: the 1955 Price War,” Journal of Industrial Economics, 1987, 35(4), 457-82.

Asker, John, “A Study of the Internal Organization of a Bidding Cartel,” American Economic Review, (June 2010), 724-762.

Tim Sablik and Nicholas Trachter, “Are Markets Becoming Less Competitive?” Economic Brief, Federal Reserve Bank of Richmond, June 2019.

Susanto Basu, “Are Price-Cost Markups Rising in the United States? A Discussion of the Evidence,” Journal of Economic Perspectives, Summer 2019, 33, 3, 3-22.

Esteban Rossi-Hansberg, Pierre-Daniel Sarte, and Nicholas Trachter, “Diverging Trends in National and Local Concentration,” NBER Working Paper 25066, Septemmber 2018.

David Autor, David Dorn, Lawrence Katz, Christina Patterson, John Van Reenen, “The Fall of the Labor Share and the Rise of Superstar Firms,” https://economics.mit.edu/files/12979, make sure you get the Oct. 2019 version, not the earlier NBER paper.

Whinston, Michael D., “Antitrust Policy Toward Horizontal Mergers,” Handbook of Industrial Organization, vol.III, chapter 36, see also chapter 35 by John Sutton.

Jan De Loecker and Jan Eeckhout, “The Rise of Market Power and its Macroeconomic Implications,” http://www.janeeckhout.com/wp-content/uploads/RMP.pdf.  My comment on it is here: https://marginalrevolution.com/marginalrevolution/2017/08/rise-market-power.html and see also me on intangible capital, https://marginalrevolution.com/marginalrevolution/2017/09/intangible-investment-monopoly-profits.html.

Chang-Tai Hsieh and Esteban Rossi-Hansberg, “The Industrial Revolution in Services, September 20, 2019, on-line.

Klein, Benjamin and Leffler, Keith. “The Role of Market Forces in Assuring Contractual Performance.”  Journal of Political Economy 89 (1981): 615-641.

Breit, William. “Resale Price Maintenance: What do Economists Know and When Did They Know It?” Journal of Institutional and Theoretical Economics (1991).

Bogdan Genchev, and Julie Holland Mortimer. “Empirical Evidence on Conditional Pricing Practices.” NBER working paper 22313, June 2016.

Sproul, Michael.  “Antitrust and Prices.”  Journal of Political Economy (August 1993): 741-754.

McCutcheon, Barbara. “Do Meetings in Smoke-Filled Rooms Facilitate Collusion?”  Journal of Political Economy (April 1997): 336-350.

Crandall, Robert and Winston, Clifford, “Does Antitrust Improve Consumer Welfare?: Assessing the Evidence,”  Journal of Economic Perspectives (Fall 2003), 3-26, available at http://www.brookings.org/views/articles/2003crandallwinston.htm.

FTC, Bureau of Competition, website, http://www.ftc.gov/bc/index.shtml, an optional browse, perhaps read about some current cases and also read the merger guidelines.

Parente, Stephen L. and Prescott, Edward. “Monopoly Rights: A Barrier to Riches.”  American Economic Review 89, 5 (December 1999): 1216-1233.

Demsetz, Harold.  “Why Regulate Utilities?”  Journal of Law and Economics (April 1968): 347-359.

Armstrong, Mark and Sappington, David, “Recent Developments in the Theory of Regulation,” Handbook of Industrial Organization, chapter 27, also on-line.

Shleifer, Andrei. “State vs. Private Ownership.” Journal of Economic Perspectives (Fall 1998): 133-151.

Xavier Gabaix and David Laibson, “Shrouded Attributes, Consumer Myopia, and Information Suppression in Competitive Markets,”http://papers.ssrn.com/sol3/papers.cfm?abstract_id=728545.

Strictly optional, most of you shouldn’t read this: Ariel Pakes and dynamic computational approaches to modeling oligopoly:

http://www.economics.harvard.edu/faculty/pakes/files/Pakes-Fershtman-8-2010.pdf

http://www.economics.harvard.edu/faculty/pakes/files/handbookIO9.pdf

 

III. Economics of Tech

 

Farrell, Joseph and Klemperer, Paul, “Coordination and Lock-In: Competition with Switching Costs and Network Effects,” Handbook of Industrial Organization, vol.III, chapter 31, also on-line.

Weyl, E. Glenn. “A Price Theory of Multi-Sided Platforms.” American Economic Review, September 2010, 100, 4, 1642-1672.

Gompers, Paul and Lerner, Josh. “The Venture Capital Revolution.” Journal of Economic Perspectives (Spring 2001): 145-168.

Paul Graham, essays, http://www.paulgraham.com/articles.html, to browse as you find useful or not.

Acemoglu, Daron and Autor, David, “Skills, Tasks, and Technologies: Implications for Employment and Earnings,” http://econ-www.mit.edu/files/5607

Robert J. Gordon and Ian Dew-Becker, “Unresolved Issues in the Rise of American Inequality,” http://www.people.fas.harvard.edu/~idew/papers/BPEA_final_ineq.pdf

Browse through the first issue of Nakamoto.com on blockchain governance, read (or not) as you find useful.

 

IV. Organization and capital structure

 

Ronald Coase and Oliver Williamson on the firm, if you haven’t already read them, but limited doses should suffice.

Gibbons, Robert, “Four Formal(izable) Theories of the Firm,” on-line at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=596864.

Van den Steen, Eric, “Interpersonal Authority in a Theory of the Firm,” American Economic Review, 2010, 100:1, 466-490.

Lazear, Edward P. “Leadership: A Personnel Economics Approach,” NBER Working Paper 15918, 2010.

Oyer, Paul and Schaefer, Scott, “Personnel Economics: Hiring and Incentives,” NBER Working Paper 15977, 2010.

Tyler Cowen chapter on CEO pay in big Business, to be distributed.

Ben-David, Itzhak, and John R. Graham and Campbell R. Harvey, “Managerial Miscalibration,” NBER working paper 16215, July 2010.

Glenn Ellison, “Bounded rationality in Industrial Organization,” http://cemmap.ifs.org.uk/papers/vol2_chap5.pdf 

Miller, Merton, and commentators.  “The Modigliani-Miller Propositions After Thirty Years,” and comments, Journal of Economic Perspectives (Fall 1988): 99-158.

Myers, Stewart. “Capital Structure.” Journal of Economic Perspectives (Spring 2001): 81-102.

Hansemann, Henry.  “The Role of Non-Profit Enterprise.” Yale Law Journal (1980): 835-901.

Kotchen, Matthew J. and Moon, Jon Jungbien, “Corporate Social Responsibility for Irresponsibility,” NBER working paper 17254, July 2011.

Strictly optional but recommended for the serious: Ponder reading some books on competitive strategy, for MBA students.  Here is one list of recommendations: http://www.linkedin.com/answers/product-management/positioning/PRM_PST/20259-135826

Furman, Jason. ”Business Investment in the United States: Facts, Explanations, Puzzles, and Policy.” Remarks delivered at the Progressive Policy Institute, September 30, 2015, on-line at https://m.whitehouse.gov/sites/default/files/page/files/20150930_business_investment_in_the_united_states.pdf.

Scharfstein, David S. and Stein, Jeremy C.  “Herd Behavior and Investment.”  American Economic Review 80 (June 1990): 465-479.

Stein, Jeremy C. “Efficient Capital Markets, Inefficient Firms: A Model of Myopic Corporate Behavior.” Quarterly Journal of Economics 104 (November 1989): 655-670.

 

V. Sectors: finance, health care, education, international trade, others 

Gorton, Gary B. “Slapped in the Face by the Invisible Hand: Banking and the Panic of 2007,” http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1401882, published on-line in 2009. 

Erel, Isil, Nadault, Taylor D., and Stulz, Rene M., “Why Did U.S. Banks Invest in Highly-Rated Securitization Tranches?” NBER Working Paper 17269, August 2011. 

Healy, Kieran. “The Persistence of the Old Regime.” Crooked Timber blog, August 6, 2014.

More to be added here, depending on your interests.