DP15512 A Refunding Scheme to Incentivize Narrow-Spectrum Antibiotic Development

Author(s): Lucas Böttcher, Hans Gersbach
Publication Date: December 2020
Keyword(s): Antibiotic-resistance - Antibiotics dilemma - R&D incentives - Refunding scheme - Narrow-spectrum antibiotics - R&D uncertainty
JEL(s): D62, H20, I10, L65, O30
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=15512

Starting from a general framework for the study of antibiotic-resistance, we introduce a market-based refunding scheme that incentivizes companies to develop antibiotics against resistant bacteria and, in particular, narrow-spectrum antibiotics that target specific resistant bacterial strains. Successful companies can claim a refund from a newly-established antibiotics fund that partially covers their development costs. The refund involves a fixed and variable part. The latter increases with the use of the new antibiotic for resistant strains-the "resistance premium"-and it decreases with the use for non-resistant bacteria-the "non-resistance penalty". We outline how such a refunding scheme can solve the so-called "antibiotics dilemma", which states that new antibiotics against resistant bacteria are of high societal value, but unattractive for companies, since sales are low. We illustrate that the refunding scheme can cope with various sources of R&D uncertainty and we discuss how the antibiotics fund could be financed.