Posner raises most of the important issues. I will make just a couple of points. Companies are reluctant to invest in developing vaccines or other protections against the Avian and other types of flu not only because of their legitimate fear of excessive litigation by those person who claim to have been harmed by the vaccine. In addition, and more important in combating pandemics, they will be forced during a pandemic to allow the production of generics and other much cheaper substitutes for effective drugs they develop, despite any intellectual property rights they are supposed to have.
This has already happened with Roche's Tamiflu drug that apparently offers some protection against avian flu. The Taiwan government has forced Roche to license the island's health department to produce Tamiflu as long as Roche does not supply enough to meet the needs of the Taiwan population. Roche has also caved in to demands by Indonesia and a couple of other countries, saying its patent does not prevent their production of Tamiflu.Yet so far there have scarcely been 100 human cases of avian flu. Can you imagine the pressures on any company to either give away its vaccine or allow cheap generic versions if a widespread pandemic develops that could kill millions of persons in many nations, as happened during the 1918-19 flu pandemic and others discussed by Posner?
These negative incentives for companies to develop vaccines is all the more regrettable since the world's population would be willing to pay enormous amounts to have a vaccine available if a serious deadly pandemic developed. Economists have estimated from people‚Äôs decisions about various life-threatening risks the amounts they would be willing to pay to reduce their risk of dying from an accident or from a disease. A young person in the United States is estimated to be willing to pay about $500 for a 1/10,000 decline in the probability of dying at each age. This means that 10,000 such young persons would be willing to pay in the aggregate about $5 million for such a decline in their risk of dying. The $5 million figure in this example is what economists call "the value of life" (to young persons for such risks).
Suppose a million individuals in the US alone were at risk of dying during a major pandemic. If $5 million is taken as the value of a life, this gives a total willingness to pay by the million persons of about $5 trillion, or about ¬Ω of US GDP, for an effective vaccine to avoid getting sick and dying from the pandemic. This is a very rough estimate that may be too large since some very elderly persons would die, and they generally put less value on living a bit longer. On the other hand, it is more likely a gross underestimate of what the world would be willing to pay since many millions of persons would also die outside America. Moreover, it may be a large underestimate even for the US since people would generally pay more to avoid the very large risks due to a deadly pandemic than the 1/10,000 improvement in risk that motivated the $3 million estimate I gave.
So the world's population would be willing to pay a lot for an effective vaccine against avian flu, but companies are given weak incentives to spend a lot on developing such vaccines. That is the challenge posed to effective public policy, and I agree with Posner that so far the US and other governments have failed to meet the challenge.