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A theory of dynamics and inequalities under epidemics

  • Raouf Boucekkine

    (CORE - Center of Operation Research and Econometrics [Louvain] - Université Catholique de Louvain (UCL) - Belgique)

  • Jean-Pierre Laffargue

    (CEPREMAP - Centre pour la recherche économique et ses applications - Centre pour la recherche économique et ses applications, PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - École des Hautes Études en Sciences Sociales (EHESS) - École des Ponts ParisTech (ENPC) - École normale supérieure [ENS] - Paris, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, UP1 - Université Paris 1, Panthéon-Sorbonne - Université Paris I - Panthéon-Sorbonne - PRES HESAM)

We develop a tractable general theory for the study of the economic and demographic impact of epidemics. In particular, we analytically characterise the short and medium term consequences of epidemics for population size, age pyramid, economic performance and income distribution. To this end, we develop a three-period overlapping generations where altruistic parents choose optimal health expenditures for their children and themselves. The survival probability of (junior) adults and children depend on such investments. Agents can be skilled or unskilled. The model emphasizes the role of orphans. Ophans are not only penalized in front of death , they are also penalized in the access to education. Epidemics are modeled as one period exogenous shocks to the survival rates. We identify three kinds of epidemics depending on how the epidemic shock alters the marginal efficiency of health expenditures. We first study the demographic dynamics, and prove that while a one-period epidemic shock has no permanent effect on income distribution, it can perfectly alter it in the short and medium run. We then study the impact of the three kinds of epidemics when they hit children and/or junior adults. We prove that while the three epidemics have significantly different demographic implications in the medium run, they all imply a worsening in the short and medium run of economic performance and income distribution. In particular, the distributional implications of the model mainly rely on orphans: if orphans are more penalized in the access to a high level of education than in front of death, they will necessarily lead to the medium-term increase in the proportion of the unskilled, triggering the impoverishment of the economy at that time horizon.

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Date of creation: Mar 2008
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Handle: RePEc:hal:psewpa:halshs-00586799
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  1. Nathan D. Grawe & Casey B. Mulligan, 2002. "Economic Interpretations of Intergenerational Correlations," NBER Working Papers 8948, National Bureau of Economic Research, Inc.
  2. Oded_Galor & Omer Moav, 2004. "Natural Selection and the Evolution of Life Expectancy," Working Papers 2004-14, Brown University, Department of Economics.
  3. Moshe Hazan & Hosny Zoabi, 2005. "Does Longevity Cause Growth," GE, Growth, Math methods 0507001, EconWPA.
  4. 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.
  5. Boucekkine, Raouf & de la Croix, David & Licandro, Omar, 2002. "Vintage Human Capital, Demographic Trends, and Endogenous Growth," Journal of Economic Theory, Elsevier, vol. 104(2), pages 340-375, June.
  6. Sebnem Kalemli-Ozcan, 2012. "AIDS, “reversal” of the demographic transition and economic development: evidence from Africa," Journal of Population Economics, Springer, vol. 25(3), pages 871-897, July.
  7. Anne Case & Darren Lubotsky & Christina Paxson, 2001. "Economic Status and Health in Childhood: The Origins of the Gradient," NBER Working Papers 8344, National Bureau of Economic Research, Inc.
  8. Brainerd, Elizabeth & Siegler, Mark V, 2003. "The Economic Effects of the 1918 Influenza Epidemic," CEPR Discussion Papers 3791, C.E.P.R. Discussion Papers.
  9. 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.
  10. David E. Bloom & Ajay S. Mahal, 1995. "Does the AIDS Epidemic Really Threaten Economic Growth?," NBER Working Papers 5148, National Bureau of Economic Research, Inc.
  11. Raouf, BOUCEKKINE & Bity, DIENE & Theophile, AZOMAHOU, 2006. "The Growth economics of epidemics," Discussion Papers (ECON - Département des Sciences Economiques) 2006021, Université catholique de Louvain, Département des Sciences Economiques.
  12. Corrigan, Paul & Glomm, Gerhard & Mendez, Fabio, 2005. "AIDS crisis and growth," Journal of Development Economics, Elsevier, vol. 77(1), pages 107-124, June.
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