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A theory of dynamics and inequalities under epidemics

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  • Raouf Boucekkine

    (CORE - Center of Operation Research and Econometrics [Louvain] - Université Catholique de Louvain (UCL) - Belgique)

  • Jean-Pierre Laffargue

    (CEPREMAP - Centre pour la recherche économique et ses applications - Centre pour la recherche économique et ses applications, PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - École des Hautes Études en Sciences Sociales (EHESS) - École des Ponts ParisTech (ENPC) - École normale supérieure [ENS] - Paris, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, UP1 - Université Paris 1, Panthéon-Sorbonne - Université Paris I - Panthéon-Sorbonne - PRES HESAM)

Abstract

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 level 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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Bibliographic Info

Paper provided by HAL in its series PSE Working Papers with number halshs-00586799.

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Date of creation: Mar 2008
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Handle: RePEc:hal:psewpa:halshs-00586799

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Keywords: epidemics ; orphans ; income distribution ; endogenous survival ; medium-term dynamics;

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Cited by:
  1. BOUCEKKINE, Raouf & DESBORDES, Rodolphe & LATZER, Hélène, 2008. "How do epidemics induce behavioral changes?," CORE Discussion Papers 2008042, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Raouf Boucekkine & Jean-Pierre Laffargue, 2009. "On the distributional consequences of epidemics," Working Papers 2009_22, Business School - Economics, University of Glasgow.
  3. Azomahou, Theophile & Diene, Bity & Soete, Luc, 2009. "The role of consumption and the financing of health investment under epidemic shocks," MERIT Working Papers 006, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
  4. Takeo Hori, 2009. "Inequality and growth: the roles of life expectancy and relative consumption," Journal of Economics, Springer, vol. 96(1), pages 19-40, January.

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