http://www.cid.harvard.edu/cidwp/pdf/111.pdf

It presents the CID Working Paper No. 111 from October 2004. The author argues that differences in timing of drug and vaccine consumption will lead firms to be biased against developing vaccines. Vaccines are sold before consumers are infected, when they still have private information regarding their infection risk, whereas drugs are sold after consumers are infected, when those with positive valuation have no private information on infection risk. Calibrations suggest that, for sexually transmitted diseases, for which infection risk is highly heterogeneous across consumers, producer surplus from drugs may exceed that from vaccines by a factor of four. Consistent with the model, empirical tests suggest vaccines are particularly unlikely to be developed for sexually transmitted diseases. Biases against vaccines are exacerbated by the durability of vaccines and by the interaction between the timing of vaccine and drug consumption and the temporary protection of intellectual property rights. We extend the analysis to allow for government procurement and for income heterogeneity among consumers. Given that antiretroviral drugs are difficult to deliver in the poor countries where most people infected with HIV/AIDS live, biases against developing a vaccine raise enormous public health concerns. Document on PDF format, Acrobat Reader required.