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Static and Dynamic Inefficiencies in an Optimizing Model of Epidemics

Author

Listed:
  • Garibaldi, Pietro
  • Moen, Espen Rasmus
  • Pissarides, Christopher

Abstract

In an optimizing model of epidemics several externalities arise when agents shield to avoid infection. Optimizing behaviour delays herd immunity but also reduces overall infections to approximately the minimum consistent with herd immunity. For reasonable parameter values, and with no vaccine, we find that agents delay too much because of a rat race to shield: they shield too much in the hope that others catch the disease and reach herd immunity. This and other externalities drive large wedges between private and social outcomes. The expectation of a vaccine reverses the effects, and agents shield too little.

Suggested Citation

  • Garibaldi, Pietro & Moen, Espen Rasmus & Pissarides, Christopher, 2020. "Static and Dynamic Inefficiencies in an Optimizing Model of Epidemics," CEPR Discussion Papers 15439, Centre for Economic Policy Research.
    • Handle: RePEc:cpr:ceprdp:15439
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    File URL: https://cepr.org/publications/DP15439
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    Keywords

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    JEL classification:

    • A12 - General Economics and Teaching - - General Economics - - - Relation of Economics to Other Disciplines
    • I10 - Health, Education, and Welfare - - Health - - - General
    • J18 - Labor and Demographic Economics - - Demographic Economics - - - Public Policy
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • D62 - Microeconomics - - Welfare Economics - - - Externalities

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