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Consumption Externality and Yield Uncertainty in the Influenza Vaccine Supply Chain: Interventions in Demand and Supply Sides

Consumption Externality and Yield Uncertainty in the Influenza Vaccine Supply Chain:... 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.This paper was accepted by Yossi Aviv, operations management. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Management Science INFORMS

Consumption Externality and Yield Uncertainty in the Influenza Vaccine Supply Chain: Interventions in Demand and Supply Sides

Arifolu, Kenan; Deo, Sarang; Iravani, Seyed M. R.
Management Science , Volume 58 (6): 20 – Dec 1, 2012
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References (58)

Publisher
INFORMS
Copyright
Copyright © INFORMS
Subject
Research Article
ISSN
0025-1909
eISSN
1526-5501
DOI
10.1287/mnsc.1110.1469
Publisher site
See Article on Publisher Site

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.This paper was accepted by Yossi Aviv, operations management.

Journal

Management Science – INFORMS

Published: Dec 1, 2012

Keywords: Keywords : influenza vaccine ; supply chain inefficiency ; strategic consumer behavior ; externality ; yield uncertainty

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