Incentives for accelerating the production of Covid-19 vaccines in the presence of adjustment costs

TL;DR

This paper analyzes how contract design and pricing strategies can incentivize faster Covid-19 vaccine production despite firms facing adjustment costs, aiming to reduce delays during the pandemic.

Contribution

It proposes an optimal contract with a decreasing price schedule to incentivize accelerated vaccine capacity buildup, addressing limitations of fixed-quantity contracts.

Findings

Fixed contracts do not incentivize rapid capacity increase.

Decreasing price schedules can align firm incentives with social goals.

Optimal contracts can mitigate delays in vaccine production.

Abstract

Delays in the availability of vaccines are costly as the pandemic continues. However, in the presence of adjustment costs firms have an incentive to increase production capacity only gradually. The existing contracts specify only a fixed quantity to be supplied over a certain period and thus provide no incentive for an accelerated buildup in capacity. A high price does not change this. The optimal contract would specify a decreasing price schedule over time which can replicate the social optimum.