Inframarginal externalities: COVID-19, vaccines, and universal mandates

By Brian C. Albrecht & Shruti Rajagopala. Albrecht is at the International Center for Law and Economics, Portland, USA. Rajagopalan is with the Mercatus Center at George Mason University, Arlington, USA. Excerpts:

"Abstract

COVID-19 vaccine mandates are in place or being debated across the world. Standard neoclassical economics argues that the marginal social benefit from vaccination exceeds the marginal private benefit; everyone vaccinated against a given infectious disease protects others by not transmitting the disease. Consequently, private levels of vaccination will be lower than the socially optimal levels due to free-riding, which requires mandates to overcome the problem. We argue that universal mandates based on free-riding are less compelling for COVID-19. We argue that because the virus can be transmitted even after receiving the vaccine, most of the benefits of the COVID-19 vaccine are internalized: vaccinated individuals are protected from the worst effects of the disease. Therefore, any positive externality may be inframarginal or policy irrelevant. Even when all the benefits are not internalized by the individual, the externalities mainly are local, mostly affecting family and closely associated individuals, requiring local institutional (private and civil society) arrangements to boost vaccine rates, even in a global pandemic. Economists and politicians must justify such universal vaccine mandates on some basis other than free-riding."

"Conclusion

This paper started from the widely accepted premise by economists writing on vaccines, that vaccines generate a positive externality. The private and social marginal benefits of vaccines do not perfectly align creating room for policy interventions to improve outcomes for everyone involved. However, we argue that vaccine mandates, which are a common policy approach to the externality are weaker than commonly acknowledged in the case of COVID-19 vaccine.

We find that the presence of a positive externality does not automatically imply free-riding. In fact, most of the benefits for the vaccines developed to battle COVID-19 are internalized. This is because vaccinated individuals are protected from the most severe consequences of the infection, but they can transmit the infection, especially in the case of newer variants of the novel corona virus. In this sense, the externality is also partially excludable since asymptomatic vaccinated individuals may transmit to the unvaccinated. Given the strong private incentives to vaccinate, the externality may be inframarginal, as defined by Buchanan and Stubblebine (1962); that is, the externalities exist, but they are irrelevant to the policy.

Second, even when the effects are not completely internalized, the external benefits are more local than global. Family members infect each other. Coworkers infect each other. The policy response should reflect the level of the externality. Therefore, the case for universal vaccine mandates is weaker than often acknowledged within the economics literature. Local public goods allow for more sorting and local “production,” which, in this case, means local incentives to take the vaccine.

Finally, if the non-universal adoption of a COVID-19 vaccine is due to preferences and beliefs about the nature/existence of the virus, vaccine, the healthcare system, and government, then the argument is not based on free-riding. Policymakers must their argument in favor of mandates rooted in explanations other than free-riding.

The case for universal COVID-19 vaccine mandates is not strongly situated in explanations for underconsumption due to a free-rider problem. Nothing in our argument implies there is no role for governmental policy in vaccination. Instead, we maintain that the policy response should not singularly focus on universal vaccine mandates to solve a free-rider problem if none exists. There may be other reasons, not related to externalities and free-rider problems, but instead in politicization, misinformation, or paternalism, to justify vaccine mandates."