Information and inequality in the time of a pandemic

We introduce two types of agent heterogeneity in a calibrated epidemiological search model. First, some agents cannot afford to stay home to minimize virus exposure. Our results show that poor agents bear most of the epidemic’s health costs. Furthermore, we show that recessions are usually deeper and recoveries are faster when a larger share of agents fail to optimally adjust their behavior during the epidemic. Second, agents develop symptoms heterogeneously. We show that for diseases with a higher share of asymptomatic cases, even when less lethal, health and economic outcomes are worse. For both types of heterogeneity, economic effects are driven by a large share of the agents taking voluntary precautions to minimize virus exposure. Due to this mechanism of voluntary precautions, testing and subsequent quarantining are particularly beneficial in economies with larger shares of poor agents. In contrast, unless a health system collapse is large enough, lockdowns are quite costly for both developing and developed economies.