Publication Date


Series Number

01-WP 269


The use of antibiotics poses an impure public goods problem. Their utilization jointly generates a (positive) private characteristic, that is, the health of the individual who consumes the drug, and a (negative) public characteristic, that is, the reduction in susceptibility that renders the drug less effective over time. The authors use an expected utility model to explicitly identify these characteristics in a dynamic setting from a social planner perspective. The trade-off between present and future use of a drug and the allocation of resources to the development of new drugs is discussed. Results suggest that the optimal policy would limit the number of people treated with an existing antibiotic through time. Also, the model indicates that short bursts of high-level investment in research and development are optimal when the research process is certain, while a steady increase in investment over time is warranted when the discovery process is uncertain.