A real option analysis for stochastic disease control and vaccine stockpile policy: An application to H1N1 in Korea

Vaccination is mostly used for controlling the diffusion of an infectious disease. This paper attempts to bridge a gap between economic model and epidemiological model to analyze the optimal vaccination strategy when the diffusion of pandemic disease follows a stochastic process. Impulsive vaccination is considered as an effective option to control an infectious disease. A real option model under stochastic Susceptible-Infected-Susceptible (SIS) environment is developed to examine the optimal vaccination threshold when the social costs and benefits of vaccination efforts are considered. A numerical illustration is provided for the case of H1N1 in Korea to show the herd immunity level as a policy rule to suppress epidemic. Policy implications are discussed regarding the vaccine stockpile as a countermeasure to epidemic diffusion.