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Static and Dynamic Inefficiencies in an Optimizing Model of Epidemics

Author

Listed:
  • Garibaldi, Pietro

    (University of Turin)

  • Moen, Espen R.

    (Norwegian Business School (BI))

  • Pissarides, Christopher A.

    (London School of Economics)

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 R. & Pissarides, Christopher A., 2020. "Static and Dynamic Inefficiencies in an Optimizing Model of Epidemics," IZA Discussion Papers 13844, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp13844
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    References listed on IDEAS

    as
    1. Brotherhood, Luiz & Kircher, Philipp & Santos, Cezar & Tertilt, Michèle, 2020. "An economic model of the Covid-19 epidemic: The importance of testing and age-specific policies," CEPR Discussion Papers 14695, C.E.P.R. Discussion Papers.
    2. Diamond, Peter A, 1982. "Aggregate Demand Management in Search Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 90(5), pages 881-894, October.
    3. Jeremy Greenwood & Philipp Kircher & Cezar Santos & Michèle Tertilt, 2019. "An Equilibrium Model of the African HIV/AIDS Epidemic," Econometrica, Econometric Society, vol. 87(4), pages 1081-1113, July.
    4. Michael Kremer, 1996. "Integrating Behavioral Choice into Epidemiological Models of AIDS," The Quarterly Journal of Economics, Oxford University Press, vol. 111(2), pages 549-573.
    5. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, December.
    6. Peter A. Diamond & Eric Maskin, 1979. "An Equilibrium Analysis of Search and Breach of Contract, I: Steady States," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 282-316, Spring.
    7. David McAdams, 2020. "Nash SIR: An Economic-Epidemiological Model of Strategic Behavior During a Viral Epidemic," Papers 2006.10109, arXiv.org.
    8. Michael Kremer, 1996. "Integrating Behavioral Choice into Epidemiological Models of the AIDS Epidemic," NBER Working Papers 5428, National Bureau of Economic Research, Inc.
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    RePEc Biblio mentions

    As found on the RePEc Biblio, the curated bibliography for Economics:
    1. > Economics of Welfare > Health Economics > Economics of Pandemics > Specific pandemics > Covid-19 > Health > Herd immunity

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    Cited by:

    1. Dirk Niepelt & Martín Gonzalez-Eiras, 2020. "Optimally Controlling an Epidemic," Diskussionsschriften dp2019, Universitaet Bern, Departement Volkswirtschaft.

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    More about this item

    Keywords

    SIR models; matching model; COVID-19; social distancing; rat race; herd immunity;
    All these keywords.

    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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