In the short term, there are only a few million doses of the COVID vaccines available, but well over 100 million adults in the US that want to take the vaccine if offered for free to the consumer. There are also billions worldwide that would like the vaccine.

So who should get it first? In practice in the US, the allocation method has already been determined politically: the federal government will allocate vaccines to the states, and states will allocate them to individuals based on a priority list: health workers and the most vulnerable first, then teachers, etc. The NY Times has a tool that shows you your probable place in line.

But essentially the allocation method being used is central planning.

John Cochrane has proposed a “free market” solution: sell the vaccine to the highest bidder. Or at least, sell some doses to the highest bidder.

As an economist, there is always some appeal in thinking about a free market solution. But there is a problem in this case: there are positive externalities from taking the vaccine. It not only benefits me, but it also benefits others. My willingness to pay only reflects the benefit to me, the private benefit. The social benefit is mostly ignored by a simple auction, and in the aggregate for a vaccine most of the benefits are likely to be social benefits. But positive externalities don’t imply we need to use central planning!

Continue reading →