Designing public vaccine procurement contracts to secure a socially optimal level of vaccination

The proposed research seeks to supply guidelines for public vaccine procurement contracts that incentivize vaccine manufacturers' production capacity building and align the interests of government vaccine buyers and vaccine manufacturers to increase the availability of vaccines in any possible future outbreaks. The outcomes of this research aim to support building Canada's advanced vaccine production capabilities. The low vaccine coverage rate, below the socially optimal level of vaccination, has been a severe concern internationally. For example, Canada recently reported shortages of the new shingles vaccine, hepatitis A and B shots, and rabies vaccine. It was also reported that manufacturers of COVID-19 vaccines established inadequate capacity before regulatory approval. Reasons for the insufficient capacity include the risks in vaccine development, regulatory approval, high demand uncertainty, and manufacturers' fear of losing the capacity-building cost. Government agencies play a crucial role as buyers of vaccines from private vaccine manufacturers. However, there is a conflict of interest between government buyers and vaccine manufacturers in the procurement contracts. Government buyers usually bargain down the procurement price to control their financial expenditure, which hurts the manufacturers' profit margin and results in insufficient capacity building. Although it has long been argued that economic incentive contracts between government buyers and vaccine manufacturers should be implemented, many governments, including Canada, have not carried out necessary sweeping reforms to vaccine procurement contracts. The proposed research seeks to shed light on the optimal government vaccine procurement contracts in an infectious disease outbreak. The proposed research aims to find contract terms that align the objectives of the two players and achieve the socially optimal level of vaccination.