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Dialogue: 0,0:00:01.83,0:00:03.81,Default,,0000,0000,0000,,♪ [music] ♪
Dialogue: 0,0:00:13.27,0:00:14.39,Default,,0000,0000,0000,,- [Alex] Hi, everyone.
Dialogue: 0,0:00:14.39,0:00:16.27,Default,,0000,0000,0000,,Today, I want to talk\Nabout applying
Dialogue: 0,0:00:16.27,0:00:18.15,Default,,0000,0000,0000,,some of the principles\Nof economics,
Dialogue: 0,0:00:18.15,0:00:20.69,Default,,0000,0000,0000,,namely externalities\Nand incentives,
Dialogue: 0,0:00:20.69,0:00:23.56,Default,,0000,0000,0000,,to understand COVID\Nand vaccine policy.
Dialogue: 0,0:00:23.95,0:00:25.98,Default,,0000,0000,0000,,Let's begin with a simple flu shot.
Dialogue: 0,0:00:26.28,0:00:31.27,Default,,0000,0000,0000,,A flu shot is a great example of \Na good with a positive externality.
Dialogue: 0,0:00:31.94,0:00:35.30,Default,,0000,0000,0000,,When I get a shot, \NI benefit myself,
Dialogue: 0,0:00:35.30,0:00:37.48,Default,,0000,0000,0000,,but I also benefit other people
Dialogue: 0,0:00:37.80,0:00:41.18,Default,,0000,0000,0000,,because I'm less likely \Nto transmit the virus.
Dialogue: 0,0:00:41.71,0:00:44.64,Default,,0000,0000,0000,,In fact, the economist \NCorey White has estimated
Dialogue: 0,0:00:44.64,0:00:49.01,Default,,0000,0000,0000,,that every two flu vaccinations\Nsaves someone else
Dialogue: 0,0:00:49.01,0:00:51.81,Default,,0000,0000,0000,,from getting sick \Nand having to miss a day of work,
Dialogue: 0,0:00:51.81,0:00:55.77,Default,,0000,0000,0000,,and every 4,000 vaccinations \Nsaves a life --
Dialogue: 0,0:00:55.77,0:00:59.10,Default,,0000,0000,0000,,that's an incredibly \Ncost-effective way of saving a life.
Dialogue: 0,0:00:59.47,0:01:04.45,Default,,0000,0000,0000,,The problem is that even though\Nthe social benefits are very high,
Dialogue: 0,0:01:04.45,0:01:07.65,Default,,0000,0000,0000,,people are unlikely to weigh\Nthe social benefits
Dialogue: 0,0:01:07.65,0:01:10.29,Default,,0000,0000,0000,,as high as the benefits \Nto themselves.
Dialogue: 0,0:01:11.01,0:01:15.23,Default,,0000,0000,0000,,So individuals are \Nunder-incentivized to get a flu shot.
Dialogue: 0,0:01:15.62,0:01:17.49,Default,,0000,0000,0000,,Now we deal with \Nthe external benefits
Dialogue: 0,0:01:17.49,0:01:20.53,Default,,0000,0000,0000,,of vaccinations \Nin a variety of ways.
Dialogue: 0,0:01:20.53,0:01:22.90,Default,,0000,0000,0000,,In some cases, such as polio,
Dialogue: 0,0:01:22.90,0:01:27.70,Default,,0000,0000,0000,,we require school children\Nto be vaccinated by law.
Dialogue: 0,0:01:27.70,0:01:29.92,Default,,0000,0000,0000,,In other cases,\Nwe offer incentives.
Dialogue: 0,0:01:29.92,0:01:33.20,Default,,0000,0000,0000,,We subsidize vaccines \Nto keep the price low.
Dialogue: 0,0:01:33.20,0:01:35.88,Default,,0000,0000,0000,,It's not just government policy,\Nby the way.
Dialogue: 0,0:01:35.88,0:01:39.79,Default,,0000,0000,0000,,Some firms will offer \Ntheir workers free flu shots --
Dialogue: 0,0:01:39.79,0:01:43.80,Default,,0000,0000,0000,,that's an interesting case \Nwhere the employer internalizes
Dialogue: 0,0:01:43.80,0:01:47.37,Default,,0000,0000,0000,,some of the positive externalities \Nfrom vaccination.
Dialogue: 0,0:01:47.77,0:01:50.28,Default,,0000,0000,0000,,COVID is especially fascinating
Dialogue: 0,0:01:50.28,0:01:54.42,Default,,0000,0000,0000,,because we can actually see\Nthe externalities in market prices.
Dialogue: 0,0:01:54.71,0:01:56.96,Default,,0000,0000,0000,,Whenever one \Nof the vaccine companies
Dialogue: 0,0:01:56.96,0:02:01.22,Default,,0000,0000,0000,,has even a little bit of good news,\Nsay, from a clinical trial,
Dialogue: 0,0:02:01.22,0:02:03.90,Default,,0000,0000,0000,,the entire stock market jumps up.
Dialogue: 0,0:02:04.17,0:02:05.95,Default,,0000,0000,0000,,Airline stocks, for example --
Dialogue: 0,0:02:05.95,0:02:10.20,Default,,0000,0000,0000,,they jump up with every bit \Nof good vaccine news.
Dialogue: 0,0:02:10.20,0:02:15.15,Default,,0000,0000,0000,,The airlines, in other words,\Nare capturing some of the benefits
Dialogue: 0,0:02:15.15,0:02:17.89,Default,,0000,0000,0000,,produced by vaccine manufacturers.
Dialogue: 0,0:02:18.26,0:02:22.38,Default,,0000,0000,0000,,And since the vaccine manufacturers\Naren't capturing all of the gains
Dialogue: 0,0:02:22.38,0:02:24.20,Default,,0000,0000,0000,,from producing vaccines,
Dialogue: 0,0:02:24.20,0:02:27.30,Default,,0000,0000,0000,,the vaccine companies \Nare under-incentivized.
Dialogue: 0,0:02:27.54,0:02:30.64,Default,,0000,0000,0000,,Now this is a case \Nwhere economics leads you
Dialogue: 0,0:02:30.64,0:02:34.59,Default,,0000,0000,0000,,to a completely different conclusion\Nthan the man in the street.
Dialogue: 0,0:02:35.32,0:02:38.38,Default,,0000,0000,0000,,The man in the street is worried\Nthat the vaccine manufacturers
Dialogue: 0,0:02:38.38,0:02:40.90,Default,,0000,0000,0000,,will profit too much \Nfrom a vaccine --
Dialogue: 0,0:02:40.90,0:02:43.05,Default,,0000,0000,0000,,that they will price gouge.
Dialogue: 0,0:02:43.05,0:02:46.90,Default,,0000,0000,0000,,The economist is worried \Nthat the vaccine manufacturers
Dialogue: 0,0:02:46.90,0:02:48.78,Default,,0000,0000,0000,,aren't profiting enough.
Dialogue: 0,0:02:49.17,0:02:53.53,Default,,0000,0000,0000,,By the way, innovations, in general,\Nare under-incentivized.
Dialogue: 0,0:02:53.53,0:02:57.42,Default,,0000,0000,0000,,The Nobel Prize-winning economist \NWilliam Nordhaus has estimated
Dialogue: 0,0:02:57.42,0:03:01.67,Default,,0000,0000,0000,,that innovators -- they only receive \Nabout 2 to 2.5% of the value
Dialogue: 0,0:03:01.67,0:03:03.47,Default,,0000,0000,0000,,of their innovations.
Dialogue: 0,0:03:03.47,0:03:08.32,Default,,0000,0000,0000,,Now we do have some institutions\Nto try to alleviate this problem.
Dialogue: 0,0:03:09.13,0:03:11.77,Default,,0000,0000,0000,,We subsidize basic research \Nin universities,
Dialogue: 0,0:03:11.77,0:03:14.42,Default,,0000,0000,0000,,and we offer firms patents, \Nfor example.
Dialogue: 0,0:03:14.42,0:03:18.50,Default,,0000,0000,0000,,But neither of these solutions \Nis going to work well for COVID.
Dialogue: 0,0:03:18.95,0:03:22.68,Default,,0000,0000,0000,,It's too late to subsidize \Nthe basic research.
Dialogue: 0,0:03:22.68,0:03:25.87,Default,,0000,0000,0000,,And a patent is exactly \Nthe wrong idea.
Dialogue: 0,0:03:25.87,0:03:31.11,Default,,0000,0000,0000,,A patent raises the price \Nabove the competitive price,
Dialogue: 0,0:03:31.11,0:03:34.54,Default,,0000,0000,0000,,but we know the competitive price\Nis already too high.
Dialogue: 0,0:03:34.94,0:03:38.21,Default,,0000,0000,0000,,For a good with a positive externality \Nlike a vaccination,
Dialogue: 0,0:03:38.21,0:03:42.13,Default,,0000,0000,0000,,we want the price to be \Nbelow the competitive price.
Dialogue: 0,0:03:42.13,0:03:47.38,Default,,0000,0000,0000,,So a patent creates \Na severe misallocation of resources.
Dialogue: 0,0:03:47.38,0:03:48.70,Default,,0000,0000,0000,,So what do we do?
Dialogue: 0,0:03:48.70,0:03:52.37,Default,,0000,0000,0000,,If we can't increase the profits \Nof the vaccine companies,
Dialogue: 0,0:03:52.37,0:03:56.49,Default,,0000,0000,0000,,say, because of politics, \Nwe can cut their costs.
Dialogue: 0,0:03:57.33,0:04:00.38,Default,,0000,0000,0000,,That's one reason why \NNobel Prize winner Michael Kremer,
Dialogue: 0,0:04:00.38,0:04:03.36,Default,,0000,0000,0000,,Susan Athey, \NChris Snyder, and myself,
Dialogue: 0,0:04:03.36,0:04:05.04,Default,,0000,0000,0000,,working with a team of economists
Dialogue: 0,0:04:05.04,0:04:07.76,Default,,0000,0000,0000,,at accelerating \Nhealth technologies --
Dialogue: 0,0:04:07.76,0:04:11.46,Default,,0000,0000,0000,,why we have proposed \Npaying vaccine manufacturers
Dialogue: 0,0:04:11.46,0:04:13.34,Default,,0000,0000,0000,,part of their costs.
Dialogue: 0,0:04:13.34,0:04:17.71,Default,,0000,0000,0000,,Now, unfortunately, \Nmost vaccines fail,
Dialogue: 0,0:04:18.66,0:04:22.39,Default,,0000,0000,0000,,so, typically,\Na vaccine manufacturer --
Dialogue: 0,0:04:22.39,0:04:24.75,Default,,0000,0000,0000,,they won't take the risk
Dialogue: 0,0:04:24.75,0:04:29.09,Default,,0000,0000,0000,,of getting a vaccine factory\Nup and running
Dialogue: 0,0:04:29.09,0:04:32.54,Default,,0000,0000,0000,,until after a vaccine has been \Nproven safe and effective.
Dialogue: 0,0:04:32.85,0:04:35.30,Default,,0000,0000,0000,,But if we follow the typical route,
Dialogue: 0,0:04:35.30,0:04:38.96,Default,,0000,0000,0000,,we might end up \Nwith an approved vaccine
Dialogue: 0,0:04:38.96,0:04:40.85,Default,,0000,0000,0000,,and not enough capacity
Dialogue: 0,0:04:40.85,0:04:44.27,Default,,0000,0000,0000,,to get millions of shots\Nin arms for months.
Dialogue: 0,0:04:44.87,0:04:46.51,Default,,0000,0000,0000,,So what we want to do
Dialogue: 0,0:04:46.51,0:04:51.34,Default,,0000,0000,0000,,is pay firms to build\Nat risk capacity now.
Dialogue: 0,0:04:51.34,0:04:54.44,Default,,0000,0000,0000,,It's expensive to build \Na factory for a vaccine
Dialogue: 0,0:04:54.44,0:04:56.60,Default,,0000,0000,0000,,that may never be approved.
Dialogue: 0,0:04:56.60,0:05:00.80,Default,,0000,0000,0000,,But it's even more expensive\Nnot to have a vaccine available
Dialogue: 0,0:05:00.80,0:05:04.10,Default,,0000,0000,0000,,the moment that one \Nis proven safe and effective.
Dialogue: 0,0:05:04.10,0:05:07.97,Default,,0000,0000,0000,,In the U.S. alone, every month \Nwithout a vaccine is costing
Dialogue: 0,0:05:07.97,0:05:12.05,Default,,0000,0000,0000,,thousands of lives \Nand billions of dollars of GDP.
Dialogue: 0,0:05:12.05,0:05:15.58,Default,,0000,0000,0000,,So speeding a safe \Nand effective vaccine
Dialogue: 0,0:05:15.58,0:05:19.55,Default,,0000,0000,0000,,is extremely valuable\Nand worth investing in.
Dialogue: 0,0:05:19.55,0:05:22.15,Default,,0000,0000,0000,,Okay, so there you have it:
Dialogue: 0,0:05:22.15,0:05:26.48,Default,,0000,0000,0000,,externalities, incentives,\Ninnovation policy,
Dialogue: 0,0:05:26.48,0:05:30.90,Default,,0000,0000,0000,,using market design to improve \Nsocial outcomes --
Dialogue: 0,0:05:31.56,0:05:34.22,Default,,0000,0000,0000,,these are key principles\Nof economics,
Dialogue: 0,0:05:34.22,0:05:38.62,Default,,0000,0000,0000,,and they can help us \Nto improve policy in a pandemic.
Dialogue: 0,0:05:40.80,0:05:42.93,Default,,0000,0000,0000,,- [Narrator] If you're a teacher,\Nyou should check out
Dialogue: 0,0:05:42.93,0:05:45.28,Default,,0000,0000,0000,,our classroom activity \Nthat incorporates this video.
Dialogue: 0,0:05:45.61,0:05:47.72,Default,,0000,0000,0000,,If you're a learner, make sure\Nthis video sticks
Dialogue: 0,0:05:47.72,0:05:49.86,Default,,0000,0000,0000,,by taking a few quick \Npractice questions.
Dialogue: 0,0:05:50.20,0:05:52.76,Default,,0000,0000,0000,,To learn more about\Nexternalities, click here.
Dialogue: 0,0:05:54.12,0:05:56.07,Default,,0000,0000,0000,,♪ [music] ♪