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Optimally Controlling an Epidemic

Author

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  • Dirk Niepelt
  • Martín Gonzalez-Eiras

Abstract

We propose a exible model of infectious dynamics with a single endogenous state variable and economic choices. We characterize equilibrium, optimal outcomes, static and dynamic externalities, and prove the following: (i) A lockdown generically is followed by policies to stimulate activity. (ii) Re-infection risk lowers the activity level chosen by the government early on and, for small static externalities, implies too cautious equilibrium steady-state activity. (iii) When a cure arrives deterministically, optimal policy is dis-continous, featuring a light/strict lockdown when the arrival date exceeds/falls short of a speci c value. Calibrated to the ongoing COVID-19 pandemic the baseline model and a battery of robustness checks and extensions imply (iv) lockdowns for 3{4 months, with activity reductions by 25{40 percent, and (v) substantial welfare gains from optimal policy unless the government lacks instruments to stimulate activity after a lockdown.

Suggested Citation

  • Dirk Niepelt & Martín Gonzalez-Eiras, 2020. "Optimally Controlling an Epidemic," Diskussionsschriften dp2019, Universitaet Bern, Departement Volkswirtschaft.
  • Handle: RePEc:ube:dpvwib:dp2019
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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. 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.

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    More about this item

    Keywords

    Epidemic; lockdown; forced opening; SIR model; SIS model; SI model; logistic model; COVID-19;
    All these keywords.

    JEL classification:

    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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