Thursday, May 10, 2007

A possible Hayekian solution to a likely pandemic

My prior post talked about the problem with the CDC or a central authority stock piling and determining the need or our country in case a pandemic arises. I thought of an idea using Hayek's principles that may be a possible solution.

Allow individual pharmacies the right throughout the country to stockpile their own store of antivirals. Then give pharmacies the right to sell "Call" options to companies, health insurers, or individuals that would give the option purchasers the right to buy from the stockpile at a given price for a period determined by the option's expiration date.

If a pandemic should arise, these individuals owning their Call options could exercise them and purchase the antivirals at the guaranteed price. Even more interesting, if an individual, company or insurer had excess Call options they could trade them in an open market.

As Hayek says, "the arbitrageur gains from local differences in [antiviral prices]". Local pharmacies and individuals can adjust their purchase "Call" options and antiviral stockpiles depending on their local need, dictated by local prices.

The premium generated by individual pharmacies from selling the options contracts could in turn support the cost of acquiring, storing, and replenishing the stock when it expires. They may even make a profit if they figure out a way to make the cost of this procedure less than the premium accrued.

My prediction is that this would lead to not only a more efficient distribution of antivirals in preparation for the pandemic, but also, a means for individuals and companies to profit from its anticipation, further driving the preparation.

No comments: