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On the distributional consequences of epidemics

  • BOUCEKKINE, Raouf
  • LAFFARGE, Jean-Pierre

We develop a tractable general theory for the study of the economic and demographic impact of epidemics, and notably its distributional consequences. To this end, we develop a three-period overlapping generations model where altruistic parents choose optimal health expenditures for their children and themselves. The survival probability of (junior) adults and children depends on such investments. Agents can be skilled or unskilled. The model emphasizes the role of orphans. Orphans are not only penalized in the face of death, they are also penalized in the access to education. Epidemics are modeled as one period exogenous shocks to the survival rates. We specifically study the consequence of a negative shock on adult survival rates in the first period. We prove that while the epidemic has no permanent effect on income distribution, it can perfectly alter it in the short and medium run. In particular, the epidemic may imply a worsening in the short and medium run of both economic performance and income distribution. Two opposite mechanisms are isolated: first, the survival rate of children at the end of the first period decreases relatively more in poor than in wealthy families. This decreases the proportion of junior adults with a low endowment of human capital in period 2. Secondly, the number of orphans in period 1 increases in both families. This decreases the proportion of junior adults with a low endowment of human capital in period 2. Therefore, the proportion of the unskilled will necessarily increase in the medium run if orphans are too penalized in the access to a high level of education.

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File URL: http://dx.doi.org/10.1016/j.jedc.2009.09.003
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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers RP with number -2204.

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Handle: RePEc:cor:louvrp:-2204
Note: In : Journal of Economic Dynamics & Control, 34(2), 231-245, 2010
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  1. BOUCEKKINE, Raouf & LAFFARGUE, Jean-Pierre, 2007. "A theory of dynamics and inequalities under epidemics," CORE Discussion Papers 2007037, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Bloom, David E. & Mahal, Ajay S., 1997. "Does the AIDS epidemic threaten economic growth?," Journal of Econometrics, Elsevier, vol. 77(1), pages 105-124, March.
  3. Angus Deaton, 2002. "Health, inequality, and economic development," Working Papers 209, Princeton University, Woodrow Wilson School of Public and International Affairs, Research Program in Development Studies..
  4. Mausumi Das & Shankha Chakraborty, 2010. "Mortality, Human Capital and Persistent Inequality," Working Papers id:2365, eSocialSciences.
  5. Bell, Clive & Gersbach, Hans, 2013. "Growth and enduring epidemic diseases," Journal of Economic Dynamics and Control, Elsevier, vol. 37(10), pages 2083-2103.
  6. Oded_Galor & Omer Moav, 2004. "Natural Selection and the Evolution of Life Expectancy," Working Papers 2004-14, Brown University, Department of Economics.
  7. Raouf, BOUCEKKINE & Rodolphe, DESBORDES & Hélène, LATZER, 2008. "How do epidemics induce behavioral changes ?," Discussion Papers (ECON - Département des Sciences Economiques) 2008025, Université catholique de Louvain, Département des Sciences Economiques.
  8. Momota, Akira & Tabata, Ken & Futagami, Koichi, 2005. "Infectious disease and preventive behavior in an overlapping generations model," Journal of Economic Dynamics and Control, Elsevier, vol. 29(10), pages 1673-1700, October.
  9. McDonald, Scott & Roberts, Jennifer, 2006. "AIDS and economic growth: A human capital approach," Journal of Development Economics, Elsevier, vol. 80(1), pages 228-250, June.
  10. 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.
  11. Nathan D. Grawe & Casey B. Mulligan, 2002. "Economic Interpretations of Intergenerational Correlations," NBER Working Papers 8948, National Bureau of Economic Research, Inc.
  12. Raouf Boucekkine & David de la Croix & Omar Licandro, . "Modelling vintage structures with DDEs: Principles and applications," Working Papers 2004-07, FEDEA.
  13. 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.
  14. Anne Case & Darren Lubotsky & Christina Paxson, 2002. "Economic Status and Health in Childhood: The Origins of the Gradient," American Economic Review, American Economic Association, vol. 92(5), pages 1308-1334, December.
  15. Galor, Oded, 2005. "From Stagnation to Growth: Unified Growth Theory," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 4, pages 171-293 Elsevier.
  16. Raouf Boucekkine & Jean-Pierre Laffargue, 2008. "A theory of dynamics and inequalities under epidemics," PSE Working Papers halshs-00586799, HAL.
  17. Jocelyn E. Finlay, 2006. "Endogenous Longevity and Economic Growth," PGDA Working Papers 0706, Program on the Global Demography of Aging.
  18. Alwyn Young, 2007. "In sorrow to bring forth children: fertility amidst the plague of HIV," Journal of Economic Growth, Springer, vol. 12(4), pages 283-327, December.
  19. repec:hal:wpaper:halshs-00586799 is not listed on IDEAS
  20. Galor, Oded & Moav, Omer, 2000. "Natural Selection and the Origin of Economic Growth," Arbetsrapport 2000:5, Institute for Futures Studies.
  21. Raouf Boucekkine & David de la Croix & Omar Licandro, . "vintage human capital, demographic trends and endogenous growth," Working Papers 2000-02, FEDEA.
  22. Samuel Bowles & Herbert Gintis, 2002. "The Inheritance of Inequality," Journal of Economic Perspectives, American Economic Association, vol. 16(3), pages 3-30, Summer.
  23. Anne Case & Christina Paxson & Joseph Ableidinger, 2004. "Orphans in Africa: parental death, poverty, and school enrollment," Demography, Springer, vol. 41(3), pages 483-508, August.
  24. Corrigan, Paul & Glomm, Gerhard & Mendez, Fabio, 2005. "AIDS crisis and growth," Journal of Development Economics, Elsevier, vol. 77(1), pages 107-124, June.
  25. Denis Cogneau & Michael Grimm, 2008. "The Impact of AIDS Mortality on the Distribution of Income in C�te d'Ivoire," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 17(5), pages 688-728, November.
  26. Hirshleifer, Jack, 1987. "Economic Behaviour in Adversity," University of Chicago Press Economics Books, University of Chicago Press, edition 1, number 9780226342825, November.
  27. Alwyn Young, 2005. "The Gift of the Dying: The Tragedy of Aids and the Welfare of Future African Generations," The Quarterly Journal of Economics, MIT Press, vol. 120(2), pages 423-466, May.
  28. Nils-Petter Lagerlöf, 2003. "From Malthus to Modern Growth: Can Epidemics Explain the Three Regimes?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(2), pages 755-777, 05.
  29. 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.
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