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A theory of dynamics and inequalities under epidemics

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Author Info
Raouf Boucekkine
Jean-Pierre Laffargue

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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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Paper provided by PSE (Ecole normale supérieure) in its series PSE Working Papers with number 2008-16.

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Date of creation: 2008
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Handle: RePEc:pse:psecon:2008-16

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  1. Raouf Boucekkine & David de la Croix & Omar Licandro, . "vintage human capital, demographic trends and endogenous growth," Working Papers 2000-02, FEDEA. [Downloadable!]
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  2. Clive Bell & Shantayanan Devarajan & Hans Gersbach, 2003. "The long-run economic costs of AIDS : theory and an application to South Africa," Policy Research Working Paper Series 3152, The World Bank. [Downloadable!]
  3. Moshe Hazan & Hosny Zoabi, 2006. "Does longevity cause growth? A theoretical critique," Journal of Economic Growth, Springer, vol. 11(4), pages 363-376, December. [Downloadable!] (restricted)
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  5. Oded Galor & Omer Moav, 2002. "Natural Selection And The Origin Of Economic Growth," The Quarterly Journal of Economics, MIT Press, vol. 117(4), pages 1133-1191, November. [Downloadable!] (restricted)
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  6. Anne Case & Darren Lubotsky & Christina Paxson, 2001. "Economic Status and Health in Childhood: The Origins of the Gradient," NBER Working Papers 8344, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  7. Nathan D. Grawe & Casey B. Mulligan, 2002. "Economic Interpretations of Intergenerational Correlations," NBER Working Papers 8948, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  12. Oded_Galor & Omer Moav, 2004. "Natural Selection and the Evolution of Life Expectancy," Working Papers 2004-14, Brown University, Department of Economics. [Downloadable!]
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  13. de Walque, Damien, 2007. "How does the impact of an HIV/AIDS information campaign vary with educational attainment? Evidence from rural Uganda," Journal of Development Economics, Elsevier, vol. 84(2), pages 686-714, November. [Downloadable!] (restricted)
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  14. Galor, Oded, 2004. "From Stagnation to Growth: Unified Growth Theory," CEPR Discussion Papers 4581, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  16. Francesco Ricci & Marios Zachariadis, 2006. "Determinants of Public Health Outcomes: A Macroeconomic Perspective," DEGIT Conference Papers c011_045, DEGIT, Dynamics, Economic Growth, and International Trade. [Downloadable!]
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  17. Angus Deaton, 2003. "Health, Inequality, and Economic Development," Journal of Economic Literature, American Economic Association, vol. 41(1), pages 113-158, March.
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  18. Raouf, BOUCEKKINE & Bity, DIENE & Theophile, AZOMAHOU, 2006. "The Growth economics of epidemics," Discussion Papers (ECON - Département des Sciences Economiques) 2006021, Université catholique de Louvain, Département des Sciences Economiques. [Downloadable!]
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  22. Sebnem Kalemli-Ozcan, 2006. "AIDS, "Reversal" of the Demographic Transition and Economic Development: Evidence from Africa," NBER Working Papers 12181, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  23. Ferreira, Pedro Cavalcanti Gomes & Pessoa, Samuel de Abreu, 2003. "The Long Run Economic Impact of AIDS," Economics Working Papers (Ensaios Economicos da EPGE) 475, Graduate School of Economics, Getulio Vargas Foundation (Brazil). [Downloadable!]
  24. Hazan, Moshe & Zoabi, Hosny, 2005. "Does Longevity Cause Growth?," CEPR Discussion Papers 4931, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  25. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July. [Downloadable!] (restricted)
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  1. Azomahou, Theophile & Diene, Bity & Soete, Luc, 2009. "The role of consumption and the financing of health investment under epidemic shocks," UNU-MERIT Working Paper Series 006, United Nations University, Maastricht Economic and social Research and training centre on Innovation and Technology. [Downloadable!]
  2. 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. [Downloadable!] (restricted)
  3. Raouf Boucekkine & Jean-Pierre Laffargue, 2009. "On the distributional consequences of epidemics," Working Papers 2009_22, Department of Economics, University of Glasgow. [Downloadable!]
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