Discussion Paper Details

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Title: Efficient Policy Interventions in an Epidemic

Author(s): Alberto Bisin and Piero Gottardi

Publication Date: October 2020

Keyword(s): Epidemic, Externalities, infection rights and Pigouvian Taxes

Programme Area(s): Industrial Organization and Public Economics

Abstract: In the context of an epidemic, a society is forced to face a complex system of externalities in consumption and in production. Command economy interventions can support Efficient allocations at the cost of severe information requirements. Competitive markets for infection rights (alternatively, Pigouvian taxes) can guarantee instead efficiency without requiring direct policy interventions on the activity of agents and firms. We demonstrate that this is the case also when the infections cannot be associated to the activities which originated them; and moral hazard then ensues. Finally, we extend the analysis to situations where governments have only incomplete information regarding the values of the parameters of the infection process or of firms' production processes.

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Bibliographic Reference

Bisin, A and Gottardi, P. 2020. 'Efficient Policy Interventions in an Epidemic'. London, Centre for Economic Policy Research.