External economies of scale, government purchasing commitment and welfare improvements in the vaccines industry

Pedro Garcia-Del-Barrio

doi:10.17979/ejge.2012.1.2.4283

Abstract

Some industries exhibit external economies of scale. In these cases,the introduction of self-financing tax subsidy programmes canimprove social welfare. This paper advocates intervention incompetitive markets if economies of scale existand implementing the policy is inexpensive.

Highlights

This paper illustrates that social welfare can be improved by introducing taxsubsidy programs in markets with external economies of scale
We are going to focus here on the external economies of scale affecting the supply-side of the market, which implies that the aggregate supply presents a negative slope in the long-run
The main idea of this paper refers to competitive industries with external economies of scale

Summary

Introduction

This paper illustrates that social welfare can be improved by introducing taxsubsidy programs in markets with external economies of scale. The aim of the paper is twofold: First, to develop a theoretical model for proving that, under certain circumstances, intervention of competitive markets through redistributive income policies always lead to Pareto-improving situations; second, to present an ad hoc theoretical framework with which to analyse the modern industry of vaccines. This will permit to apply some of the theoretical ideas of the paper to understand how the modern vaccines industry operates at the present. External economies of scale occur when a fall in unit costs arises from an expansion of an industry, without necessarily increasing the size of individual firms This is possible because any number of firms may enter the market in the long run.

Another possible approach adopts a demand-side perspective

Conclusion