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Vaccine Externalities by Mitra L. '07

Health economics applied to the decreased odds of my getting the flu, courtesy of my suitemates

So in my previous entry, I talked about how the Medlinks were providing free flu shots in the student center. WELL it turns out my suitemate Gabe ’08 got one today, but I didn’t end up getting one for myself. In 14.21J: Health Economics, a class in which I had an exam today, we recently modeled this sort of behavior.

Basically, vaccines have positive externalities because I am benefitting from the fact that Gabe has the vaccine (decreased odds that I’ll get sick) in a way for which I do not compensate him. Read on, grasshopper.

Here’s a simple derivation of the private demand curve. This curve will be what Gabe uses to decide whether he should get the vaccine or not.

One potential policy implication is that we should subsidize vaccines such that at the subsidized price, the private demand curve will be at the socially optimal quantity (in this case, proportion).

NOTE: Technically, my cost/supply curve (in this case, we made supply perfectly elastic) should be at P=0 since Medlinks provided the vaccine for free. My bad. You may be wondering how governments (or, in this case, universities) subsidize something that they are offering for free. What they can do is impose a fine on *not* consuming the good, but still offer the good at a price of P=0. It’s a weird kind of subsidy, but it works.

It takes another three pages to derive the social demand curve. This curve takes into account the positive effect that getting the vaccine has on other people. In order to reach the socially optimal proportion of people in the population who have the vaccine, each individual should use the social demand curve. However, since they don’t get compensated for the positive effect they exert on others, they will underconsume the good, and a proportion lower than the social optimum will get the vaccine.

(Open up the images in a new browser to see larger versions of them.)

An example of a negative externality is antibiotic resistance; by consuming a certain kind of medicine, I am making others worse off because I increase the growth of mutant strains against which the medicine is no help, and I am not compensating others for this. If I had to pay others for the cost of increased likelihood of mutant strains every time I took this medicine, then it would not be an externality because I am compensating others for my consumption. In this case, using the private demand curve causes me to consume more than the social optimum.

8 responses to “Vaccine Externalities”

  1. Bryan says:

    Thanks for your answer, Mitra. Enlightening =)

  2. Bryan says:

    How does the fact that I had to stand in line for 30 minutes to get my free flu shot factor into your model? And how about the few tear drops due to my phobia of getting shots? Would that be considered a positive or negative externality?

  3. Mitra says:

    Dude, it was FREE!

    (Okay, maybe that is not such a sophisticated answer.)

  4. Veena says:

    Hey Mitra,

    ahh, it’s nice to see a fellow econ major be so excited about econ– yah course 14!!

    Veena

  5. Joe says:

    I love externalities…they’re my favorite part of economics…Particularly interesting is the pollution credits plan that is used to penalize high pollution companies and reward low emissions level ones.

  6. Sam says:

    Dude, Medlinks better not fine me for not getting a flu shot. They have too much power already. Down with Medlinks!

  7. BT says:

    At NYU Medical Center they were giving flu shots to employees, I suppose so you don’t infect the patients.

    I accidentally missed it, although I kinda count as volunteer staff. Good thing I do lab work, not medical stuff ^_^;

  8. Hey Mitra , thinking that you are special ,i am interested to know more about your life at MIT, my favorite U. I’m currently a high school senior and applying at MIT. I have your blahg on my ‘My MIT’ home page. I have looked at it and found it to be interesting. By the way, please pray for my admission at MIT.