UCL Discovery
UCL home » Library Services » Electronic resources » UCL Discovery

A Two-sided Incentive Program for Coordinating the Influenza Vaccine Supply Chain

Arifoğlu, K; Tang, CS; (2021) A Two-sided Incentive Program for Coordinating the Influenza Vaccine Supply Chain. Manufacturing & Service Operations Management (In press). Green open access

[img]
Preview
Text
Arifoglu and Tang (2020) - A Two-sided Incentive Program for Coordinating the Influenza Vaccine Supply Chain.pdf

Download (2MB) | Preview

Abstract

Problem definition: The US influenza (flu) vaccine supply chain is decentralized and experiences frequent supply and demand mismatches caused by two key factors: (1) the vaccine production process (yield) is highly uncertain; and (2) individuals are self-interested and do not completely take into account positive and negative externalities that they impose on others. To improve matching of supply and demand, we counteract these factors by developing an ex-ante budget-neutral incentive program. Methodology: We model the flu vaccine supply chain as a decentralized system consisting of self-interested individuals on the demand side, and a profit-maximizing manufacturer with uncertain yield on the supply side. We use backward induction to characterize the subgame-perfect equilibrium of the sequential game that models the interactions between individuals and the manufacturer. Results: We develop a two-sided incentive program that proposes ‘vaccination incentives’ to be given to individuals on the demand side, and ‘a menu of transfer payments’ between the social planner and manufacturer on the supply side. When the realized vaccine supply is high (or low), our incentive program provides positive (negative) vaccination incentives for individuals to stimulate (or curb) the demand and eliminate positive (or negative) externalities by making vaccination more affordable (or costly). When social benefits from vaccination are significantly high, our incentive program uses a menu of transfer payments to penalize (or subsidize) the manufacturer for low (or high) yield realizations so that it produces the socially-optimal quantity. We show that our incentive program can attain the social optimum, maintain an ex-ante balanced budget (i.e., budget-neutral in expectation), and distribute the maximum social welfare between individuals and the manufacturer arbitrarily. Academic/practical relevance: We establish the sources of inefficiency in the flu vaccine supply chain. To eliminate the inefficiency, we develop a two-sided incentive program that policymakers can implement to finance vaccines under an ex-ante balanced budget. Managerial implications: Vaccination incentives to individuals can ensure their access to the vaccine, but they are not enough to entice the manufacturer to ensure vaccine availability. A menu of contracts contingent on realized yield provides necessary incentives to the manufacturer and assures the availability.

Type: Article
Title: A Two-sided Incentive Program for Coordinating the Influenza Vaccine Supply Chain
Open access status: An open access version is available from UCL Discovery
Publisher version: https://pubsonline.informs.org/journal/msom
Language: English
Additional information: This version is the author accepted manuscript. For information on re-use, please refer to the publisher’s terms and conditions.
Keywords: Influenza vaccine, contract, vaccination incentive, self-interested behavior, externality, random yield
UCL classification: UCL
UCL > Provost and Vice Provost Offices
UCL > Provost and Vice Provost Offices > UCL BEAMS
UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Engineering Science
UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Engineering Science > UCL School of Management
URI: https://discovery.ucl.ac.uk/id/eprint/10071198
Downloads since deposit
131Downloads
Download activity - last month
Download activity - last 12 months
Downloads by country - last 12 months

Archive Staff Only

View Item View Item