Endogenous substitution between antibiotics under open access to the resource of antibiotic efficacy

Abstract

We analyze the use of multiple antibiotics when producers have open access to a common pool of antibiotic treatment efficacy. Patients derive demand for each antibiotic given its price, additional recovery rate (intrinsic quality) and level of treatment efficacy. The market outcome is compared to the social optimum and we characterize the dynamics of infected individuals, antibiotic efficacy and treatment rates. We show that the high-quality antibiotic drug loses its comparative advantage over time under both allocations making the low-quality drug the treatment of last resort. The switch to the last-resort treatment occurs at a later point of time in the social optimum and better controls for infection in the longer run. Accounting for the endogenous social cost of infection, we show that the socially optimal steady-state level of antibiotic efficacy is always lower than under open access. We also provide a taxation/subsidy policy allowing to correct these distortions.