Why a Vaccine must be Free
Vaccines have rarely been out of the news in recent weeks. The British vaccine roll-out has proceeded apace, and there has been talk of making vaccine passports a condition for travel or entry into sports events or pubs. Some have questioned the civil-liberty aspects of this, but economic analysis helps us understand just WHY the government has been so keen to promote vaccine take-up in the UK.
Vaccination provides a classic example of what economists call a MERIT GOOD. A Merit Good is one which the government thinks people will underconsume if left to their own devices. In other words, if vaccines were like any other product which people buy as much as they want of in the market, people will tend to purchase fewer vaccines than the government considers optimal for the benefit of society. As a result there is a case for the government to intervene.
For these types of goods, we model 2 demand lines; one which represents the benefit to the private individual D=MPB. It shows the amount of the vaccine demanded by people at each given price. As the price falls, more people will want to take the vaccine. This demand line reflects the calculation of how people will consider the vaccine works for them personally: some will think the vaccine is worth taking and paying for; but others will think it’s not worth it: maybe they are young, or think they won’t get covid, or are afraid of needles, or whatever. They might weigh the price of the vaccine against the other things they can do with the money and the probability of catching covid if others are vaccinated.
The trouble is such people are only thinking of themselves: they ignore the fact that the beneficiaries of a vaccine are not just those who have the jab, but others who will be less likely to get covid as a result. As more people are vaccinated the more society as a whole benefits from the jab. Economists call these wider effects of an individual’s actions EXTERNALITIES. In the case of the vaccine these externalities are POSITIVE. If I take the jab it’s not just me who benefits — other people do too. Hence there are two demand curves for the vaccine: the private demand curve of individuals (MPB), and the wider demand curve for society reflecting the Marginal Social Benefit — MSB.
It can be seen therefore that if people are left to their own devices, the market leads us to a vaccination rate of Qmkt which is less than we want at Qef.
There are two ways that the government can try to get society to the optimal amount of vaccination Qef.
- It can try to increase demand. It can run advertising programmes and create peer pressure to get individuals to value the benefits of vaccines more highly. This would shift out the MPB demand line closer to the optimal MSB line. Clearly our government has done this with some success. This is shown in the shift of MPB towards MSB.
- The other method is to increase supply by subsidising the production of vaccines so vaccines become cheaper. As vaccines become cheaper so will more people choose to take them. In the below diagram this is shown by the rightward shift in the Supply line from MSC to MSC+subsidy.
The goal in both cases is to increase the take up of vaccines.
Of course in Britain our vaccines are actually free at point of use. Why?
Aside from the overall ethos of the NHS, it makes economic sense to offer everyone a free vaccine.
If we charged for a vaccine then our basic demand curve tells us that not everyone would purchase it. The higher the price, the lower the quantity demanded.
At a price of, say, £90, the demand for a vaccine would be, eg, 10 million doses. But we don’t want some people to opt out because the price is too high. So by lowering the price to zero, we are more certain of getting almost every adult vaccinated.
This makes good sense for another reason. In the case of covid, the benefits to society of wide vaccine take-up are enormous. This is not just because of the health benefits but because of the ECONOMIC ones. If we are to get out of lock-down and get the economy properly moving we need to have wide vaccine take-up. So the more people take the vaccine the quicker our economy can recover. The economic as well as the health benefits are huge: the MSB Demand line is very high. In this case it simply makes sense to give the vaccine away since whatever the cost of making it, the benefits from people taking it are much higher. By offering the vaccine for free, we make the decision to have the vaccine a ‘no brainer’. I don’t have to choose between a vaccine and something else I need; I don’t need to free ride on the fact that others are hopefully vaccinated. At 0 price, society is in fact getting a bargain.
Not all countries do offer vaccinations for free. And these are often the countries that have serious health problems and communicable disease. The link below allows you to see which countries are making the most progress with the covid vaccine. Where vaccines are only being offered by private firms at a price, the vaccination rates are indeed very low.
https://www.bbc.co.uk/news/world-56025355
