Abstract

We argue that reluctance to invest in drug treatments to fight the AIDS epidemic in developing countries is largely motivated by servere losses occuring from the future albeit uncertain appearance of a curative vaccine. We design a set of secutities generating full insurance coverage against such losses, while achieving full risk-sharing with vacccine development agencies. In a general equilibrium framework, we show that those securities are demanded to improve social welfare in developing countries, to increase current investment in treatmeans and provision of public good. Even though designed for AIDS, those securities can also be applied to other epidemics such as Malaria and Tuberculosis.