In this week's Letter, Professor Paul Kofman discusses the likely cost of a COVID-19 vaccine, and the method Australia might use to pay for it.
I hope those of you in Melbourne enjoyed the excellent weather over the weekend. On my weekend runs I noticed a large number of people out in parks seeing friends and family after a partial ease on our restrictions. In order to prevent a second wave of COVID-19, it is crucial we still adhere to physical distancing rules. Until there is a vaccine, the world needs to remain cautious. It is on this topic, and from an economist’s perspective, I want to write to you about today.
How much should Australia pay for a COVID-19 vaccination? This was the question posed last week to Professor Chris Edmond, from our Department of Economics, on the University of Melbourne’s Life Beyond Coronavirus discussion panel episode about the quest for a vaccine.
The figure, as you would expect, is significant.
Of the 100 or so vaccines being developed around the world, there are now 10 at human trial stage. When one is finally successful, the two alternatives for paying for the vaccine, according to Chris are option A) a patent or licensing type model, where the inventor of the vaccine is rewarded with the profits of the drug; or option B) a prize, where the company or laboratory of the vaccine is paid a lump sum based on the very high need and public good, allowing Governments to ‘nationalise’ the vaccine to provide everyone with access.
So back to that figure…1 trillion Australian dollars is the ‘simple, round’ figure Chris suggests.
To arrive at this answer, Chris took the Australian population of 25 million, factored in a 1% fatality rate and the Governments standard statistical value of a ‘life’ which is $4m (in Australia – it differs in other countries), which equates to roughly 1 trillion dollars. For Australia to pay this amount, everyone would have to give up their entire earnings for a full 6 months. However, Chris explains that in order to ease the ‘shock’ to the economy when paying for a vaccine, the Government would most likely take this cost on in debt which the country would pay back over the course of a generation.
Creating a vaccine is a complex and difficult task, it is not one that can be rushed.
The impact on the world’s economy was both large and sudden following the rapid shut down of the labour market, as Chris comments “never before have we seen this happen so quickly. It is the speed of the shock that has economists so concerned…we’ve never seen a collapse in the US labour market that was so sudden.” While shocking to the economy, it was necessary. In a recent article with co-authors Bruce Preston and Richard Holden, Chris argues that it was vital to ensure Australia not only halted activity to reduce the spread of COVID-19, but also allowed it time to have an adequate medical response in place. In terms of ICU capacity, testing, contact tracing and protective equipment for medical professionals. All necessary preparations to gradually start re-opening the economy. Keeping the economy running over this period, as some have argued, would have provided short term gain at best. Given public fear for infection, economic activity would still have been significantly curtailed with low margin businesses negatively affected. And, of course, there would have been a far greater cost to public health.
Let’s be clear, the economic cost of COVID-19 will be significant. But, by enforcing strict measures and closing borders at an early stage, Australia may come out of COVID-19 with a predicted 6 per cent drop in GDP in 2020 followed by a 6 per cent rise in 2021, as forecast by the Reserve Bank of Australia. A far better outcome than many countries in Europe are forecast to experience.
I do recommend you watch the full panel interview with Chris and his fellow panel members including Professor Sharon Lewin, Director, The Peter Doherty Institute for Infection and Immunity and Professor Kanta Subbarao, Director, WHO Collaborating Centre for Reference and Research on Influenza, The Peter Doherty Institute for Infection and Immunity, who both have extremely interesting perspectives and expertise with which to discuss the quest for a vaccine.
I know this is a busy time of semester with assignments, good luck! Whether you are studying in Melbourne or overseas, it has been a challenging semester for all, and I hope you are very proud of your persistence and determination to get to this point.
Stay safe, stay well,