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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

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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. Gonzalez-Eiras, Martín & Niepelt, Dirk, 2022. "The political economy of early COVID-19 interventions in US states," Journal of Economic Dynamics and Control, Elsevier, vol. 140(C).
    2. Dirk Niepelt & Martín Gonzalez-Eiras, 2020. "Optimally Controlling an Epidemic," Diskussionsschriften dp2019, Universitaet Bern, Departement Volkswirtschaft.
    3. So Kubota, 2021. "The macroeconomics of COVID-19 exit strategy: the case of Japan," The Japanese Economic Review, Springer, vol. 72(4), pages 651-682, October.
    4. Bisin, Alberto & Gottardi, Piero, 2021. "Efficient policy interventions in an epidemic," Journal of Public Economics, Elsevier, vol. 200(C).
    5. Peter T. Leeson & Louis Rouanet, 2021. "Externality and COVID‐19," Southern Economic Journal, John Wiley & Sons, vol. 87(4), pages 1107-1118, April.

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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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