Integrated epi‐econ assessment: Quantitative theory

Aimed at pandemic preparedness, we construct a framework for integrated epi‐econ assessment that we believe would be useful for policymakers, especially at the early stages of a pandemic outbreak. We offer theory, calibration to micro‐, macro‐, and epi‐data, and numerical methods for quantitative policy evaluation. The model has an explicit microeconomic, market‐based structure. It highlights trade‐offs, within period and over time, associated with activities that involve both valuable social interaction and harmful disease transmission. We compare market solutions with socially optimal allocations. Our calibration to Covid‐19 implies that households shift their leisure and work activities away from social interactions. This is especially true for older individuals, who are more vulnerable to disease. The optimal allocation may or may not involve lockdown and changes the time allocations significantly across age groups. In this trade‐off, people's social leisure time becomes an important factor, aside from deaths and GDP. We finally compare optimal responses to different viruses (SARS, seasonal flu) and argue that, going forward, economic analysis ought to be an integral element behind epidemiological policy.