Advance market commitment

This funding mechanism is used when the cost of research and development is too high to be worthwhile for the private sector without a guarantee of a certain quantity of purchases.

In the case of vaccines, an advance market commitment is a contract between three types of parties: the sponsors, the recipient countries, and the firms.

[citation needed] AMC is designed to address immediate and long-term vaccine market distortions, implementing a price cap strategy to limit deadweight loss.

This enhancement in R&D is crucial in response to a series of identified challenges: the restricted demand from low-income countries due to limited purchasing power, the occurrence of the free-rider problem where individuals benefit from herd immunity without being vaccinated, and the risk of political pressure to reduce vaccine prices, altogether leading to a hold-up problem where manufacturers may be cautious about investing in R&D due to concerns over recovering their costs.

[4] Inspired by his experiences in Kenya, where he contracted malaria, he then proposed the idea of a "vaccine purchase commitment" to encourage research on neglected diseases.

[5][6] In 2001, a report of the United Kingdom mentioned that a potential global fund to fight HIV/AIDS, malaria, and tuberculosis could also make advance purchase commitments.

[8] The first advance market commitment was launched in 2009 by GAVI, the World bank, WHO, UNICEF, five national governments, and the Gates Foundation.

[15] Before the arrival of the vaccine of the Serum Institute of India, Médecins sans frontières criticised the AMC for providing excessive subsidies to GSK and Pfizer.

[16][17][18] In December 2021, an AMC for carbon-removal was first proposed in a Politico essay by economists Susan Athey, Rachel Glennerster, Christopher Snyder and Nan Ransohoff, the head of Stripe Climate.

"[20] Ransohoff, who leads the project, told The Atlantic that the carbon-removal market will probably need to reach $1 trillion per year.

[22] Advance purchase agreements (APAs), like AMCs, are a tool to incentivize capacity and R&D by reducing demand uncertainty.

Michael Kremer and Heidi Williams argue that the presence of this "market test" makes AMCs more valuable than prizes at generating innovations usable at scale.