Information Elicitation and Influenza Vaccine Production

We explore the procurement of influenza vaccines by a government whose objective is to minimize the expected social costs (including vaccine, vaccine administration, and influenza treatment costs) when a for-profit vaccine supplier has production yield uncertainty, private information about its productivity (adverse selection), and potentially unverifiable production effort (moral hazard). Timeliness is important-costs for both the supplier and the government procurer may increase if part of the vaccine order is delivered after a scheduled delivery date. We theoretically derive the optimal menu of output-based contracts. Next, we present a menu that is optimal within a more restricted set of practically implementable contracts, and numerically show that such a menu leads to near-optimal outcomes. Finally, we present a novel way to eliminate that information rent if the manufacturer's effort is also verifiable, a counterintuitive result because the manufacturer has private productivity information. This provides an upper bound for the government on how much it should spend to monitor the manufacturer's effort.