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Michael Kremer is a non-resident fellow at the Center for Global Development, the University Professor in Economics and Director of the Development Innovation Lab at the University of Chicago, a senior fellow at the Brookings Institution, and a 2019 co-recipient of the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel. He is a fellow of the American Academy of Arts and Sciences, a recipient of a MacArthur Fellowship and a Presidential Faculty Fellowship, and was named a young global leader by the World Economic Forum. Kremer’s recent research examines education and health in developing countries, immigration, and globalization. He and Rachel Glennerster published Strong Medicine: Creating Incentives for Pharmaceutical Research on Neglected Diseases, which won the Association of American Publishers Award for the Best Professional/Scholarly Book in Medical Science in 2004. He is a 2005 recipient of the International Health Economics Association’s Kenneth J. Arrow Award for best paper in health economics. In 2006, Scientific American named him one of the 50 researchers of the year.
As the GAVI Alliance gears up for its pledging conference in June, a CGD panel reflected on progress and lessons learned in financing GAVI since 2001 and explored implications for the next decade. Speakers had first-hand experience in the design and implementation of the major vaccine financing instruments—Alice Albright, former CFO of GAVI; Michael Kremer, co-chair of CGD’s Advance Market Commitment (AMC) Working Group; Helen Evans and David Ferreira, GAVI; and Amie Batson, Deputy Assistant Administrator for Global Health at USAID. Key takeaways from the event are directly below, and a longer summary—with embedded video clips—is below that. You can also watch a full recording of the event here.
We argue that in pharmaceutical markets, variation in the arrival time of consumer heterogeneity creates differences between a producer’s ability to extract consumer surplus with preventives and treatments, potentially distorting R&D decisions. If consumers vary only in disease risk, revenue from treatments—sold after the disease is contracted, when disease risk is no longer a source of private information—always exceeds revenue from preventives. The revenue ratio can be arbitrarily high for sufficiently skewed distributions of disease risk. Under some circumstances, heterogeneity in harm from a disease, learned after a disease is contracted, can lead revenue from a treatment to exceed revenue from a preventative. Calibrations suggest that skewness in the U.S. distribution of HIV risk would lead firms to earn only half the revenue from a vaccine as from a drug. Empirical tests are consistent with the predictions of the model that vaccines are less likely to be developed for diseases with substantial disease-risk heterogeneity
Each year billions of dollars are spent on thousands of programs to improve health and education in the developing world but very few programs are rigorously evaluated to learn if they make a difference. A CGD proposal to fix this longstanding problem is gaining momentum.
The final report of the CGD Evaluation Gap Working Group released last week recommends the creation of a new, independent entity that would corral the good intentions of stakeholders to ensure an adequate supply of rigorous impact evaluations.