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PRELIMINARY: The Social Value of a Vaccine for the COVID-19 Epidemic

by Carlos GarrigaRody Manuelli, and Sid Sanghi
Posted online May 13, 2020

The discovery of a vaccine for the COVID-19 virus has become the most pressing challenge for researchers in the medical profession. According to the Coalition for Epidemic Preparedness Innovation (CEPI), an organization with the mission to stimulate and accelerate the development of vaccines against emerging infectious diseases and enable access to these vaccines for people during outbreaks, there over 115 candidates for a vaccine in different stages of development. In the United States, the Food and Drug Administration, under the Emergency Use Authorization policy, has allowed more than 50 entities to use unapproved medical products or unapproved uses of approved medical products to fight against COVID-19. As of today, no candidate for a vaccine has completed clinical trials. The most optimistic expectation is to have a vaccine in early 2021.

Since early May, the European Union is leading a worldwide initiative to raise $8 billion from countries and private foundations to develop a vaccine that ends the pandemic. This figure does not include the funding that private pharmaceutical companies with experience developing and supplying vaccines on a large scale are currently investing in the discovery of the vaccine. Therefore, it is difficult to measure on a global scale the total cost invested in the effort to achieve a vaccine. The objective of this post is to provide the reader with estimates of the dollar value of discovering a vaccine from the perspective of society. Our findings suggest that the societal value of a vaccine critically depends on the stage of the epidemic (i.e., whether the vaccine is discovered early or late in the epidemic) and the policies in place to manage it (i.e., restrictions in economic activity to mitigate the spread of the virus).

To calculate the dollar value, we use a standard epidemiological framework augmented with an economic model and analyze the optimal management of the epidemic.1  In the model, there is an initial phase of the epidemic where the only tool to manage the epidemic is a stay-at-home policy that restricts employment to mitigate the risk of infection. The key trade-off is the loss of economic output (the extent of which depends on the severity of the stay-at-home order) and the spread of the virus (which results in deaths).

The arrival of a vaccine provides an additional tool to control the epidemic. During this second phase, the vaccine can be used to control the spread of the virus but cannot fully eradicate it. We consider a baseline case where the vaccine is expected to be available to the public in 12 months, in line with the predictions of CEPI. We also analyze alternative scenarios with vaccine discoveries 6 months earlier than expected and 12 months later than expected.

In our study, the economic societal value of the vaccine depends on the stage of the epidemic, determined by the number of infected individuals and number of susceptible individuals, and is calculated as the monetary equivalent of the difference in the social valuation of Phase I and Phase II. In our framework, if the vaccine arrives when the epidemic has run most of its course—that is, the number of individuals susceptible to the COVID-19 virus is very low—the social value is extremely low, about 0.4% of its monetary value at the beginning of the pandemic. For this reason, the economic value of a vaccine (ignoring recurrences) decreases over time.

What are the implications of a declining value on how to finance the discovery of a vaccine? To the extent that the private value of a vaccine moves with the social value, our analysis indicates that fewer resources should be allocated by the private sector to finding a vaccine as the epidemic progresses. For example, if the research lab or pharmaceutical company that discovers the vaccine receives a patent, the economic value of that patent declines to zero as time goes by because the epidemic is being controlled. With a declining social pay-off, firms should respond by devoting fewer resources to discovering a vaccine as time goes by. Given that incentives change over time, awarding a large monetary prize to the originators might be a more efficient mechanism, relative to a patent, to produce a vaccine in a shorter period.

Given that our theory predicts that the value of a vaccine is small at long-enough horizons, the interesting quantitative question is to assess how much this social value changes for relatively short time horizons.2  Table 1 reports the dollar equivalent of the gains associated with the availability of a vaccine for several of our scenarios: Some values are in trillions (T), and some are in billions (B). We provide estimates at four time windows (at the beginning of the epidemic, a month into the epidemic, 6 months into the epidemic, and a year into the epidemic).

Table 1: The Social Value of the Vaccine (in USD)

It is important to provide some background details to see how these scenarios in the table differ, as they are essential for understanding the differences in the social value of the vaccine.

The baseline scenario assumes the following: (i) the initial reproduction number/infection rate (R0) is equal to 2.8; (ii) the constraint on hospital capacity—measured in terms of ICU beds—is 140,000; (iii) the duration of the illness is 3 weeks; (iv) the discovery of the vaccine is expected in week 50; and (v), upon arrival of the vaccine, health authorities can vaccinate only % of the population, 16.5 million individuals, every week. The case of a high rate of contagion assumes a value for the reproduction number equal R0 to 4 instead of 2.8, but everything else is the same as the baseline.

Our study also considers two alternatives scenarios to the baseline case. The optimistic scenario assumes that the expected arrival time is 24 weeks (but we still describe the realization in week 50, for comparison), the hospital capacity is twice the baseline, and the vaccination rate is 30% of the population per week. In the pessimistic case, the R0 is 4, the ICU capacity is reduced to 70,000 beds, the expected duration to a vaccine is about 3 years (about three times the baseline).

The different scenarios imply very different time valuations for a vaccine. The values in the initial month, ignoring the “optimistic” scenario, are large and range between $1 trillion and $5 trillion. For reference, 3 months of U.S. GDP are worth about $5 trillion. However, at around 12 months, the estimates for the value of the vaccine fall below $5 billion (except in the “pessimistic” scenario). The reason why the value of the vaccine decreases as the pandemic progresses is because of a fall in susceptible people, assuming that the majority of those who recovered have immunity and are no longer susceptible. In the optimistic scenario where the medical infrastructure is able to handle a much higher infection rate and vaccinate the entire population within a couple of weeks, the value of the vaccine is much lower, about 0.2% of the baseline at the onset of the pandemic.

In contrast, in a pessimistic scenario where the virus is much  more contagious (R0 = 4 instead of 2.8) and the healthcare infrastructure is much weaker (namely, hospital beds available for COVID-19 patients are reduced to half and the rollout of the vaccine is reduced to about 3 million individuals per week), the vaccine would be very valuable to society. Even after about a year, the value would be above $3 trillion. To the extent that the sharp drop in value over time matches the slope of the private payoff, our results suggest that the private sector will face decreasing incentives to allocate resources to discover a vaccine as time passes.

It is important to emphasize that most of the social value of a vaccine is driven by the valuation of human life. This value includes two key components: One measures the number of deaths, whereas the other measures the economic value of each life lost. In all the cases discussed in Table 1, the measure of the value of life counts only those deaths due to exceeding hospital capacity with a fairly optimistic valuation of the economic contribution of each life lost.

Table 2 provides the same statistics for two alternative valuations of life: In the baseline, we assume that society cares only about the deaths due to exceeding hospital capacity, with a fairly optimistic valuation of the economic contribution of each life lost. In the “all lives matter” case places an equal value on all deaths associated with the epidemic, which includes a fraction of all infected individuals and not just those dying due to exceeding the capacity of hospital infrastructure, but the economic value of each death is the same as in the baseline.

Table 2: The Value of Life and the Social Value of the Vaccine (in USD)

For the case where “all lives matter,” the value of having a vaccine available in 25 weeks (roughly 6 months) after the start of the epidemic is about 6 times higher than in the baseline scenario. These results reinforce the message that the valuation that society puts on human life (a very difficult subject) is critical in the derivation of these numbers. In ongoing work, we are incorporating how the value of a vaccine changes if there is a much higher recurrence of the virus—possibly due to a virus mutation that can re-infect those who were previously infected and who recovered or a sudden inflow of infected individuals due to seasonality and geographical mobility.


1 The reader can access the technical version titled “Optimal Management of an Epidemic: Lockdown, Vaccine, and the Value of Life” from the link.

2 This result assume that the effects of future recurrences are small. It also abstracts how the discovery a vaccine can help to develop future vaccines for different mutations of the virus. 

Preliminary, incomplete. To cite, please request author’s permission.  

© 2020, Federal Reserve Bank of St. Louis. These views do not reflect the opinion of the Federal Reserve Bank of St. Louis or the Federal Reserve System. 

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