Advance Market Commitments: Insights from Theory and Experience
By MICHAEL KREMER, JONATHAN LEVIN, AND CHRISTOPHER M. SNYDER**Kremer:

Departmentof Economics,

Harvard

University,

Cambridge, MA 02138 (e-mail: mkremer@fas.harvard.edu) and
NBER. Levin: Graduate School of Business, Stanford University,
Stanford, CA 94305 (e-mail: jdlevin@stanford.edu) and NBER.
Snyder: Department of Economics, Dartmouth College, Hanover, NH
03755 (e-mail: chris.snyder@dartmouth.edu) and NBER. The authors
were members of the Economic Expert Group that helped to design thepilot Advance Market Commitment for pneumococcus vaccine. We are
grateful to Arthur Baker for excellent research assistance and Owen

access to these vaccines once developed. The
AMC has donors pledge to top up payments for
newly introduced vaccine meeting technicalbenchmarks, conditional on the firm’s setting
the price close to marginal cost.
The AMC is designed to tackle static anddynamic distortions in the vaccine market. The

Barder and Rachel Glennerster for insightful comments.

Ten years ago, donors committed $1.5 billion

price-cap feature of the AMC is designed to

to a pilot Advance Market Commitment

mitigate static deadweight loss from firms’(AMC) to help purchase pneumococcal

exercising market power. Donors’ commitment

vaccine for low-income countries. The AMC

to top up price above marginal cost is designed

aimed to encourage the development of suchto bolster dynamic R&D incentives, which are

vaccines, ensure distribution to children in low-

weak due to a number of factors including

incomeAMC

limited purchasing power in low-income

mechanism for possible future use. Three

countries, free riding by the unvaccinated on

vaccines have been developed and more than

the reduction in disease transmission, and

150 million children immunized, saving anpolitical pressure to reduce price once a vaccine

estimated 700,000 lives. This paper reviews thehas been developed, causing a hold-up

economic logic behind AMCs, the experienceproblem.

with the pilot, and key issues for future AMCs.

AMCs’

countries,

and

pilot

the

I. Theory of AMCs
A. Technologically Distant Target
Kremer and Glennerster (2004) proposed
AMCs to encourage research on vaccines
against diseases such as malaria primarily
affecting low-income countries, and to promote“pull”

funding

is

meant

to

supplement, not replace, direct R&D support(i.e.,“push”

funding)while

mitigatingproblems attendant with trying to pick winning
projects ex ante under asymmetric information.
B. Technologically Close Target
The original AMC concept was translated
into an actionable proposal in a Center forGlobal Development working group report

Third, product characteristics are more

(Barder, Kremer, and Levine 2005). The grouppredictablesuggestedtechnologicallyconducting

AMCs

for

both

and

easilyclose

understoodproducts.

forCountrytechnologically distant and technologically

copayments provide an important market test

close targets. There are several important

for technologically distant products, preventing

theoretical distinctions between these targets.

resources from being wasted on productsFirst, the further a vaccine is along its

meeting technical specifications but notdevelopment path into clinical trials, the lessconsumer needs. This test may not be needed

R&D remains to be undertaken. The key

for technologically close products.

challenge switches from incentivizing R&D to
incentivizing adequate capacity to bring usage
to socially efficient levels. Vaccine capacity isexpensive. Whether to avoid hold up of thesubstantial capacity investment required (in abargaining model) or to leverage monopsony
power (in a price-theoretic model), a robust
theoretical finding is that firms will tend tounderinvest in capacity absent an AMC.
Second, the nature of the information
asymmetry between firms and AMC funders
may change with technological distance. For atechnologically distant vaccine, the funder may
know little about the nature and viability of thetechnology, giving the researchers asymmetric
information about its chance of success. For atechnologicallyclosevaccine,publishedclinical trials may inform the funder about the
product’s viability, closing that information
gap. However, as the firm solidifies its
production process, it may instead gain
asymmetric information about its costs.

C. Modeling AMC Design
Kremer, Levin, and Snyder (2019) develop amodel of AMC design that illuminates many ofthese issues. The model focuses on the hold-up
problem: firms invest in R&D and capacity
before bargaining with purchasers over priceand quantity. Purchasers expropriate someinvestment returns in bargaining, leading thefirm to underinvest. The firm may not develop
the vaccine at all; if it does, it will underinvest
in capacity to serve low-income countries.
An AMC that commits to a subsidy policy
prior to the firm’s investment helps address theinefficiency. However, the design matters: if
the AMC merely sets a per-dose subsidy, amonopoly supplier can claim the entire AMC
fund with its low equilibrium capacity.
Increasing capacity merely increases the rate at
which funds are received. As Kremer, Levin,and Snyder (2019) show, a better solution ties
AMC funds to capacity commitments.

II. Pneumococcal Pilot AMC

In 2010, GAVI set the first tender for 60

In 2007, five countries and the Gates
Foundation pledged $1.5 billion toward a pilot
AMC targeting a pneumococcal conjugate
vaccine(PCV).

The

World

HealthOrganization (WHO) estimated pneumococcus
killed more than 700,000 children under five indeveloping countries annually at that time
(WHO 2007). A PCV covering disease strainsprevalent in developed countries alreadyexisted, and PCVs covering the strains indeveloping countries were in late-stage clinical
trials; so this was a technologically close target.
In 2009, the AMC launched under thesupervision of GAVI (formerly the Global
Alliance for Vaccines and Immunizations). The
design called for firms to compete for ten-year
supply contracts capping price at $3.50 per
dose. A firm committing to supply 𝑋𝑋 million

annual doses (𝑋𝑋/200 of the projected 200

million annual need) would secure an 𝑋𝑋/200

share of the $1.5 billion AMC fund, paid out asa per-dose subsidy for initial purchases. The
AMC covered the 73 countries below an
income threshold for GAVI eligibility. Country
co-payments were set according to standard
GAVI rules. Countries were required to have
70% coverage with DPT vaccine to obtain
pneumococcus vaccine under the program.

million doses. GSK and Pfizer each committed
to supply 30 million doses annually, at $3.50
per dose, or $10.50 for a three-dose course(these and subsequent facts from GAVI(2019)). GAVI issued subsequent tenders overtime, sometimes outpaced by country demand.
In each case, the firms expanded their supply
commitments in line with the tenders. There
has been purchaser and public pressure for the
manufacturers to reduce their prices, whichcurrently are down to $2.90 per dose. In 2019,a third vaccine developed by the Serum
Institute of India qualified for the AMC
program. Serum Institute is expected toparticipate in tenders for the remaining $262
millionof

uncommitted

AMC

funds,

reportedly pricing its vaccine at $2 per dose forlow-income countries.
By 2016, PCV was distributed in 60 of the 73
eligible countries, and annual distribution
exceeded 160 million doses, enough toimmunize over 50 million children per year. As
Figure 1 in the Online Appendix shows, by
2018, nearly half of the target child populationin GAVI countries was covered. While
coverage is far from full, it is higher than in
non-GAVI countries. A key reason why thefraction of the population covered is smaller
than the fraction of countries covered is thatIndia, by far the most populous GAVI country,

did not adopt PCV until 2017 and currently

suggesting firms expanded capacity faster forruns only a limited program in five states.

PCV than rotavirus vaccine.

Estimates from Tasslimi, et al. (2011)
suggest that the PCV rollout has been highly
cost effective. At initial program prices, thePCV rollout avoided the loss of a disability

III. Design Issues
A. Country Copayments, Pricing, Coverageadjusted life year (DALY) at cost of only $83.

AMC designers do not know manufacturers’

The WHO classifies interventions as highly

reservation price for installing adequate

cost effective if a DALY costs less than one

capacity to supply needed vaccines or

GDP per capita.

countries’ willingness to provide copayments.

Evidence on the cost effectiveness of PCV

Because the benefits of vaccines far exceed

does not prove the cost effectiveness of thetheir production costs, AMC designers face anoverall AMC because we lack a valid

asymmetric loss function in setting firm prices

counterfactual. We do not know, absent an

and country copayments. Offering firms less

AMC, whether and when vaccines would havethan their reservation value or asking countries

been developed, how much push funding

to make copayments greater than theirwould have been spent, or what prices would

willingness to pay risks children not receiving

have been set. However, the high costlifesaving vaccines. This is very costly relative

effectiveness of PCV implies that the AMC

to what the donor can save by paying firms

would have been worthwhile were there even asomewhat less or charging countries somewhat

small chance that it sped up PCV adoption.

more, so maximizing social welfare underSome insight on the effect of the AMC

uncertainty requires paying firms more than the

promoted capacity and adoption can be gained

expected cost of the vaccine and setting country

by comparing PCV to rotavirus vaccine, for

copayments below the expected marginal cost.

which GAVI supported purchases over a

The Online Appendix provides a range ofsimilar time period without an AMC. Figure 2

calibrations quantifying the asymmetry of thein the Online Appendix shows that the rate ofloss function. For example, assuming the AMC

vaccine coverage in GAVI countries converged

designer sought to maximize health benefit

to the global rate almost five years faster forwith the available funds, correctly anticipated

PCV. At the same time, shortages of rotavirus

the speed of rollout under the AMC, and usedvaccine were more severe than of PCV,

money saved from lower vaccine prices forother health interventions at the WHO

Still, prices for PCV are much lower undereffective

the AMC than outside it. Currently, lower-interventions, the $3.50 price set in the pilot

income countries in the Americas pay $12 or

dominates a $2 price even if the lower pricemore per dose (WHO 2019); the U.S. Centersgenerated only a 4% risk the firms refuse tofor Disease Control and Prevention (CDC)

participate (although the precise figure ispays $137 (CDC 2019). As we show in Figure

sensitive to assumptions about alternative uses

3 in the Online Appendix, the percentage

of savings). Analogous calculations can show

discount GAVI receives compared to variousthat if there were even a small chance that

global price measures is greater for PCV thanlower copayments would have led India orfor almost any other vaccine.

thresholdforhighlycost

other countries to adopt sooner, this would

ExtendingAMC

participation

beyondhave substantially increased the expected

GAVI-eligible countries could have saved

number of lives saved through the program.

more lives, although it is possible that

While some activists have argued that the

manufacturers would have demanded higher$3.50 paid per dose exceeds manufacturing

prices for a program covering higher-income

costs, the relevant issue for AMC designers iscountries if they thought this would have cut

not manufacturing costs but firms’ reservation

into sales at higher prices or put pressure on

values.

pricing in higher income countries.

Their

reservation

valuesmay

substantially exceed manufacturing costs forseveral reasons: the AMC top up may not fully
defray their capacity costs; they may fear thatoffering a low AMC price would lead higher
income countries to press for price reductions.
While these factors imply ex ante optimal
prices will exceed expected production costs,
the facts that both firms participated eventhough one likely had substantially higher
manufacturing cost and that both continued toparticipate at $2.90 per dose suggests that atleast one firm would likely have participated ata lower price.

C. Number of Firms
A program with lower copayments, moregenerous country inclusion rules, and faster
issuance of tenders for the full AMC amount
could potentially have generated greater healthbenefits up to now.
However, holding back some funds for later
tenders may have helped incentivize entry by
Serum Institute (although the product also
received substantial push funding). Serum
Institute’s vaccine is somewhat cheaper toproduce than previous PCVs, but the chiefbenefit of this entry likely comes from inducing

On the other hand, the design and enforcement

greater competition in the market outside ofof long-term contracts that hold prices close to

GAVI countries and in the GAVI-country

marginal cost and that assure consistent supply

market after the AMC ends. Another benefit isthroughthat India may decide to expand its heretofore

interruptions may be difficult.

limited participation in response to the entry ofa domestic supplier.
A key issue for future AMCs will be whether
to split the AMC among multiple suppliers andreserve tenders for future entrants as did thepilot pneumococcus AMC or to concentrateincentives on a single supplier as envisioned in
Kremer and Glennerster (2004). Sponsors of
the AMC pilot prioritized entry of multiple
vaccines because they saw competition as
essential for holding down long-run prices andavoiding supply interruptions. Kremer andGlennerster (2004) prioritized the developmentof a vaccine where none currently existed,relying on the price cap, to which the firm
agrees to access AMC funds, to keep prices
near marginal cost over the long term. Penalty
clauses could be specified to mitigate supply
interruptions. Development of yet moreadvanced vaccines could be incentivizedthrough subsequent AMCs.
For

distanttechnologicaltargets,

incentivizing a sequence of entrants reduces
incentives for the first vaccine to enter. Thus,
structuring a program to incentivize multiple
entrants may substantially increase total costs.

penaltyclausesforsupplyD. Political Economy of Target Choice
Policymakers may wish to explore future
AMCs with different design features. Kremer,
Levin, and Snyder (2019) argue that focusing
on a technologically more distant target might
generate larger overall benefits. However,political factors may favor technologicallycloser targets. Firms that have a product close
to market have stronger incentives to engage
politically than firms with early-stage ideas for
distant targets. Moreover, while an AMC for a
distant product does not impose substantial
financial costs unless a product is developed,
politicians looking for a “win” may be reluctant
to expend significant effort on a project that
only pays off once they have left office, if at all.
One solution might be to simultaneously
launch a bundle of AMCs that include someeye-catching long-term targets with someshort-term targets that will deliver quick wins.
When technologically close targets arechosen,

there

are

furtherpolitical

considerations. There may be strong industry
lobbying around product specifications toinclude their approaches and exclude potential

rivals’. If the process involves first selecting

Levine. 2005. Making Markets for Vaccines:

a disease target and then designing the AMC

Ideas to Action. Washington, DC: Center for

details, more weight in the second stage will be

Global Development

put on getting the product to market than saving

Centers for Disease Control and Prevention.

money that is already earmarked. It may be

2019.

possible to address some of these concerns by

https://www.cdc.gov/vaccines/programs/vfc

broadening the set of possible targets, or having/awardees/vaccine-management/price-severallist/index.html.

groupsdesignAMCs

targetingdifferent products and using competitive
mechanisms to decide which receives funding.

first decade, and we now have a decade oflearning from the pneumococcal pilot. While
aspects of program evaluation are complicated,the best estimates suggest that the introductionof PCV saved 700,000 lives at a highly
favorable cost. Iterations likely could improve
AMC design, just as market designs have beenrefined in settings such as school choice andradio spectrum allocation. Policymakers may
wish to consider offering a set of AMCs,
perhaps each smaller in scale than the pilot
pneumococcus AMC, where potential targets
beyondhealth

Price

List.

GAVI. 2019. Advance Market Commitment for
Pneumococcal

Vaccines:

2018

AnnualKremer, Michael, and Rachel Glennerster.

The AMC moved from theory to practice in its

range

VaccineReport. Geneva.

IV. Conclusions

could

CDC

to

address

agricultural or sustainability problems specificto developing countries.
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