We develop a tractable general theory for the study of the economic and demographic impact of epidemics. In particular, we analytically characterise the short and medium term consequences of epidemics for population size, age pyramid, economic performance and income distribution. To this end, we develop a three-period overlapping generations where altruistic parents choose optimal health expenditures for their children and themselves. The survival probability of (junior) adults and children depend on such investments. Agents can be skilled or unskilled. The model emphasizes the role of orphans. Ophans are not only penalized in front of death , they are also penalized in the access to education. Epidemics are modeled as one period exogenous shocks to the survival rates. We identify three kinds of epidemics depending on how the epidemic shock alters the marginal efficiency of health expenditures. We first study the demographic dynamics, and prove that while a one-period epidemic shock has no permanent effect on income distribution, it can perfectly alter it in the short and medium run. We then study the impact of the three kinds of epidemics when they hit children and/or junior adults. We prove that while the three epidemics have significantly different demographic implications in the medium run, they all imply a worsening in the short and medium run of economic performance and income distribution. In particular, the distributional implications of the model mainly rely on orphans: if orphans are more penalized in the access to a high llevel of education than in front of death, they will necessarily lead to the medium-term increase in the proportion of the unskilled, triggering the impoverishment of the economy at that time horizon.
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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number
2007037.
Find related papers by JEL classification: O1 - Economic Development, Technological Change, and Growth - - Economic Development D9 - Microeconomics - - Intertemporal Choice and Growth I1 - Health, Education, and Welfare - - Health I2 - Health, Education, and Welfare - - Education
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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[Downloadable!]
Other versions:
David Cutler & Angus Deaton & Adriana Lleras-Muney, 2005.
"The Determinants of Mortality,"
Working Papers
164, Princeton University, Woodrow Wilson School of Public and International Affairs, Research Program in Development Studies..
[Downloadable!]
David M. Cutler & Angus S. Deaton & Adriana Lleras-Muney, 2006.
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Other versions:
Lorentzen, Peter L. & McMillan, John & Wacziarg, Romain, 2005.
"Death and Development,"
CEPR Discussion Papers
5246, C.E.P.R. Discussion Papers.
[Downloadable!] (restricted)
Peter Lorentzen & John McMillan & Romain Wacziarg, 2005.
"Death and Development,"
NBER Working Papers
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[Downloadable!] (restricted)
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