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Private versus social responses to a pandemic

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  • Casares, Miguel
  • Gomme, Paul
  • Khan, Hashmat

Abstract

What are the socially optimal restrictions on private activity during a pandemic? How do these differ from private decisions? We address these questions by modeling the interactions between epidemiology and the macroeconomy. Unlike the private planner, the social planner accounts for two externalities: the increase in the cost of severe illness associated with more infected individuals, reflecting the capacity constraints of the health care system; and the socioeconomic transmission of the virus from asymptomatic to susceptible individuals. Owing to these externalities, the social planner imposes stricter constraints on socioeconomic activities. Applied to the COVID-19 pandemic, socially optimal restrictions reduce the welfare costs by roughly one percent of GDP.

Suggested Citation

  • Casares, Miguel & Gomme, Paul & Khan, Hashmat, 2025. "Private versus social responses to a pandemic," Journal of Economic Dynamics and Control, Elsevier, vol. 181(C).
    • Handle: RePEc:eee:dyncon:v:181:y:2025:i:c:s016518892500168x
    DOI: 10.1016/j.jedc.2025.105202
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    Cited by:

    1. Hongtao Li & Taisuke Nakata & Hiroki Sakamoto & Hiroyuki Uneya, 2026. "Lockdown Policy Rules with a Hospital Capacity Constraint," Working Papers e223, Tokyo Center for Economic Research.
    2. Hongtao Li & Taisuke Nakata & Hiroki Sakamoto & Hiroyuki Uneya, 2026. "Lockdown Policy Rules with a Hospital Capacity Constraint," CARF F-Series CARF-F-620, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.

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    Keywords

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    JEL classification:

    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • E11 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Marxian; Sraffian; Kaleckian

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