11/6/25 | 4:15pm | E51-145
Peng Sun
JB Fuqua Professor in the Decision Science area
Duke
Abstract: Malaria caused over 600,000 deaths in 2021, yet commercial incentives are weak for drug and vaccine development for malaria and other tropical diseases. Governments and nonprofits address these market failures through push (e.g., grants) and pull (e.g., prizes). We propose a third mechanism in which the funder only pays when the firm fails. That is, the funder reimburses the firm a share of its testing costs, which we refer to as “insurance.” Infinite-dimensional linear optimization and duality theory enables us to study the optimal mechanisms, which address adverse selection and moral hazard. For most tropical diseases, including malaria, we recommend pull funding with supplementary push support. Insurance is optimal for tuberculosis if testing costs are less than a billion dollars. These findings challenge current practices dominated by push funding and extend to funding innovations in other sectors.
Bio: Peng Sun is a JB Fuqua Professor in the Decision Sciences area at the Fuqua School of Business, Duke University. He researches mathematical theories and models for decisions under uncertainty, and incentive issues in dynamic environments. His work spans a range of applications areas, from operations management, economics, finance, marketing, to health care and sustainability. He serves as a Department Editor at Management Science, and was an Associate Editor at Operations Research.