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Optimal Trade-Off between Economic Activity and Health during an Epidemic

Author

Listed:
  • Andersson, Tommy

    (Department of Economics, Lund University)

  • Erlanson , Albin

    (Department of Economics, University of Essex)

  • Spiro, Daniel

    (Department of Economics, Uppsala University)

  • Östling, Robert

    (Department of Economics, Stockholm School of Economics)

Abstract

This paper considers a simple model where a social planner can influence the spread-intensity of an infection wave, and, consequently, also the economic activity and population health, through a single parameter. Population health is assumed to only be negatively affected when the number of simultaneously infected exceeds health care capacity. The main finding is that if (i) the planner attaches a positive weight on economic activity and (ii) it is more harmful for the economy to be locked down for longer than shorter time periods, then the optimal policy is to (weakly) exceed health care capacity at some time.

Suggested Citation

  • Andersson, Tommy & Erlanson , Albin & Spiro, Daniel & Östling, Robert, 2020. "Optimal Trade-Off between Economic Activity and Health during an Epidemic," Working Papers 2020:8, Lund University, Department of Economics.
    • Handle: RePEc:hhs:lunewp:2020_008
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    References listed on IDEAS

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    1. Fernando Alvarez & David Argente, 2020. "A Simple Planning Problem for COVID-19 Lockdown," Working Papers 2020-34, Becker Friedman Institute for Research In Economics.
    2. Martin S Eichenbaum & Sergio Rebelo & Mathias Trabandt, 2021. "The Macroeconomics of Epidemics [Economic activity and the spread of viral diseases: Evidence from high frequency data]," The Review of Financial Studies, Society for Financial Studies, vol. 34(11), pages 5149-5187.
    3. Gonzalez-Eiras, Martin & Niepelt, Dirk, 2020. "On the Optimal "Lockdown" During an Epidemic," CEPR Discussion Papers 14612, C.E.P.R. Discussion Papers.
    4. David Berger & Kyle Herkenhoff & Chengdai Huang & Simon Mongey, 2022. "Testing and Reopening in an SEIR Model," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 43, pages 1-21, January.
    5. Ichino, Andrea & Favero, Carlo A. & Rustichini, Aldo, 2020. "Restarting the economy while saving lives under Covid-19," CEPR Discussion Papers 14664, C.E.P.R. Discussion Papers.
    6. Callum Jones & Thomas Philippon & Venky Venkateswaran, 2021. "Optimal Mitigation Policies in a Pandemic: Social Distancing and Working from Home [A simple planning problem for covid-19 lockdown]," The Review of Financial Studies, Society for Financial Studies, vol. 34(11), pages 5188-5223.
    7. Fenichel, Eli P., 2013. "Economic considerations for social distancing and behavioral based policies during an epidemic," Journal of Health Economics, Elsevier, vol. 32(2), pages 440-451.
    8. Miclo, Laurent & Weibull, Jörgen W. & Spiro, Daniel, 2020. "Optimal epidemic suppression under an ICU constraint," TSE Working Papers 20-1111, Toulouse School of Economics (TSE).
    9. David Berger & Kyle Herkenhoff & Chengdai Huang & Simon Mongey, 2022. "Testing and Reopening in an SEIR Model," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 43, pages 1-21, January.
    10. Thomas Kruse & Philipp Strack, 2020. "Optimal Control of an Epidemic through Social Distancing," Cowles Foundation Discussion Papers 2229, Cowles Foundation for Research in Economics, Yale University.
    11. Laurent Miclo & Daniel Spiro & Jörgen Weibull, 2020. "Optimal epidemic suppression under an ICU constraint ," Working Papers hal-02563023, HAL.
    12. Michael Greenstone & Vishan Nigam, 2020. "Does Social Distancing Matter?," Working Papers 2020-26, Becker Friedman Institute for Research In Economics.
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    Cited by:

    1. Ian M. Trotter & Lu'is A. C. Schmidt & Bruno C. M. Pinto & Andrezza L. Batista & J'essica Pellenz & Maritza Isidro & Aline Rodrigues & Attawan G. S. Suela & Loredany Rodrigues, 2020. "COVID-19 and Global Economic Growth: Policy Simulations with a Pandemic-Enabled Neoclassical Growth Model," Papers 2005.13722, arXiv.org, revised Jun 2020.
    2. Acedański, Jan, 2021. "Optimal lockdown policy during the election period," Economic Analysis and Policy, Elsevier, vol. 72(C), pages 102-117.

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    More about this item

    Keywords

    Covid-19 pandemic; SI-model; economic activity; health; optimal policy;
    All these keywords.

    JEL classification:

    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes

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