Consumption externality and yield uncertainty in the influenza vaccine supply chain: Interventions in demand and supply sides

Kenan Arifoǧlu*, Sarang Deo, Seyed M.R. Iravani

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

39 Scopus citations

Abstract

We study the impact of yield uncertainty (supply side) and self-interested consumers (demand side) on the inefficiency in the influenza vaccine supply chain. Previous economic studies, focusing on demand side, find that the equilibrium demand is always less than the socially optimal demand because self-interested individuals do not internalize the social benefit of protecting others via reduced infectiousness (positive externality). In contrast, we show that the equilibrium demand can be greater than the socially optimal demand after accounting for the limited supply due to yield uncertainty and manufacturer's incentives. The main driver for this result is a second (negative) externality: Self-interested individuals ignore that vaccinating people with high infection costs is more beneficial for the society when supply is limited. We show that the extent of the negative externality can be reduced through more efficient and less uncertain allocation mechanisms. To investigate the relative effectiveness of government interventions on supply and demand sides under various demand and supply characteristics, we construct two partially centralized scenarios where the social planner (i.e., government) intervenes either on the demand side or the supply side, but not both. We conduct an extensive numerical analysis.

Original languageEnglish (US)
Pages (from-to)1072-1091
Number of pages20
JournalManagement Science
Volume58
Issue number6
DOIs
StatePublished - Jun 1 2012

Keywords

  • Externality
  • Influenza vaccine
  • Strategic consumer behavior
  • Supply chain inefficiency
  • Yield uncertainty

ASJC Scopus subject areas

  • Strategy and Management
  • Management Science and Operations Research

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