DP14664 Restarting the economy while saving lives under Covid-19

Author(s): Carlo A. Favero, Andrea Ichino, Aldo Rustichini
Publication Date: April 2020
Date Revised: June 2020
Keyword(s): COVID19, post lockdown policies, SEIR model
JEL(s): D6, H84, I12, I18
Programme Areas: Labour Economics, Public Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=14664

We provide, calibrate and test a realistic model of the spread of SARS-Cov-2 in an economy with different risks related to age and sectors. The model considers hospital congestion and response of individuals adjusting their behavior to the virus' spread. We measure precisely the size of these effects using real data for Italy on intensive care capacity and mobility decisions; thus our claim is that the tradeoffs we estimate are quantitatively, rather than qualitatively, approximately correct. We characterize the policies of containment of the epidemic that are efficient with respect to number of fatalities and GDP loss. Prudent policies of gradual return to work may save many lives with limited economic costs, as long as they differentiate by age group and risk sector. More careful behavior of individuals induced by the perceived cost of infection may contribute to further reduce fatalities.