Abstract
In a year without vaccine shortages, no fewer than 36,000 deaths - twelve times the number of September 11 victims - and 200,000 hospitalizations are attributed to influenza and its complications. In terms of productivity, between $11 and $20 billion is lost. The sudden elimination of one of only two manufacturers and half the national supply was hardly an unforeseeable or rare event, as numerous Senate testimonies and General Accounting Office reports have documented recurring supply problems with this and other critical vaccines. The commonly offered explanations for what is often viewed as a failure of free market mechanisms are incorrect or at best secondary. Some conclude that, to avert future crises, the government needs to run its own production facilities or be the sole distributor. I disagree. Instead, the government and the private sector should each do what it does best. The government can create an incentive structure to entice pharmaceuticals to enter the market, while providing the oversight to ensure, with a very high likelihood, that aggregate supply covers total demand.