Health, Risky Behavior and the Value of Medical Innovation for Infectious Disease

We propose a dynamic framework to study the value of medical innovation in the context of infectious disease. We apply our framework to evaluate an HIV treatment breakthrough known as HAART. The model captures how, in lowering both the expected cost and likelihood of HIV infection, HAART reduced the implicit price of risky sex. Forward-looking agents responded by optimally shifting their behavior. The model also imposes equilibrium constraints, explicitly capturing how optimal shifts in behavior affect equilibrium choices by changing both infection probabilities and the ease of finding partners willing to engage in risky sex. Using the estimated model, we conduct counterfactual simulations to compute the value of HAART from the perspective of uninfected agents. This includes the option value of the innovation along with value accruing from changes in sex behavior in response to HAART introduction. We also calculate the added-value of a fully functional vaccine from the perspective of both infected and uninfected agents, where infected agents benefit from a vaccine due to resulting shifts in market equilibrium.

Advance Access at OUP

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