Ideas to Action:

Independent research for global prosperity

Misaligned Incentives

Improved forecasting would benefit many stakeholders--so why hasn't it been fixed?

Part of the problems with demand forecasting can be traced to the fact that major changes in funding, products and other factors are relatively recent, and there has not yet been a corresponding improvement in forecasting methods or institutional roles. The bigger problem, however, is that risks are unequally shared by key actors whose decisions affect supply of and demand for products. Pharmaceutical companies shoulder the largest burden of risk, as they must invest upfront in treatments for which there is no guaranteed buyer. Patients, who directly experience and suffer the consequences when vital medicines are not produced, are not in a position to reduce the risks. The institutions that could reduce risks--funders and intermediaries--only feel the consequences of bad forecasts indirectly, and thus lack the incentive to change. Across the actors in the supply chain, incentives to share high-quality information about both supply of and demand for products are misaligned.

Moreover, because of the limited market potential in developing countries, the private sector invests little in market research and the development of other sources of information that are common in developed markets. If not corrected, the misalignment of incentives will continue to constitute a major barrier to equitable and sustainable access to essential medicines.