The Value of a Vaccine
The stock market this morning offers a useful event study on how much of the social value of a vaccine the producer of the vaccine may expect to be able to capture. The good news from Moderna’s early-stage coronavirus vaccine trials lifted the Dow about 3 percent and Moderna itself around 30 percent, according to the Washington Post. We can’t be sure, of course, that these increases were solely because of this news, but let’s assume that this is a good first approximation. The market cap of the Dow increased by around $216 billion, while the market cap of Moderna increased by around $6 billion.
Keep in mind that the value of global stock markets is more than ten times as great as the value of the Dow. Also keep in mind that a cure would produce benefits not reflected in equities, perhaps multiple times over. Whatever the exact math, it is clear that the markets expect that a company that produces a successful vaccine would only be able to capture a small percentage of the social value of that vaccine. This may be in part because if one vaccine maker is successful, several others are also likely to be successful, but the profits to all hypothetically successful vaccine makers in total are likely to exceed the private value to the vaccine company by many, many times.
My claim is not that the Moderna vaccine will be successful, a question on which I have no expertise. My point is simply that market participants were somewhat more confident about our economic future as a result of the news, and stocks therefore became more valuable. Moderna benefited from the news more than any other stock, but the total economic benefits of the vaccine are expected to be much larger than the benefits to Moderna.
What are the consequences for law and policy? It suggests that any government policy that reduces incentives to bring successful vaccines to market may be costly. For example, if vaccine manufacturers believe that governmental restraints on price gouging or public criticism will prevent them from selling at anything other than a low price, their incentives will be reduced. Fewer vaccine candidates may be tested, and those that are tested may be tested at a more leisurely pace than they otherwise would be. If that pace reduces social value by even 10%, that social loss may be much greater than the benefits of
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