Work

Investment in antiviral drugs: a real options approach

Year: 2009

Type: article

Abstract: Real options analysis is a promising approach to model investment under uncertainty. We employ this approach to value stockpiling of antiviral drugs as a precautionary measure against a possible influenza pandemic. Modifications of the real options approach to include risk attitude and deviations from expected utility are presented. We show that risk aversion counteracts the tendency to delay investment for this case of precautionary investment, which is in contrast to earlier applications of risk aversion to real options analysis. Moreover, we provide a numerical example using real world data and discuss the implications of real options analysis for health policy. Suggestions for further extensions of the model and a comparison with the expected value of information analysis are put forward.

Source: Health Economics

DOI: 10.1002/hec.1549

Authors: Arthur E. Attema, Anna K. Lugnér, Talitha L. Feenstra

Institutions: Erasmus MC, National Institute for Public Health and the Environment, University Medical Center Groningen

Language: English

Topic: Capital Investment and Risk Analysis

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

SDG: Good health and well-being

Open Access status: hybrid

Estimated APC paid: $4,050