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Investment in antiviral drugs: a real options approach

✍ Scribed by Arthur E. Attema; Anna K. Lugnér; Talitha L. Feenstra

Publisher
John Wiley and Sons
Year
2009
Tongue
English
Weight
155 KB
Volume
19
Category
Article
ISSN
1057-9230

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✦ Synopsis

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. Copyright © 2009 John Wiley & Sons, Ltd.

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