Two Free DP Downloads 19 April 2020

Monday, April 20, 2020

Optimal COVID-19 Quarantine and Testing Policies
Facundo Piguillem, Liyan Shi   
CEPR DP No. 14613 | 14 April 2020

Abstract: Many countries are taking measures stopping productive activities to slow down the spread of COVID-19. At times these measures have been criticized as being excessive and too costly. In this paper we make an attempt to understand the optimal response to an infectious disease. We find that the observed policies are very close to a simple welfare maximization problem of a planner who tries to stop the diffusion of the disease. These extreme measures seem optimal in spite of the high output cost that it may have in the short run, and for various curvatures of the welfare function. The desire for cost smoothing reduces the intensity of the optimal quarantine while extending it for longer, but it still amounts to reducing economic activity by at least 40%. We then study the possibility of either complementing or substituting the quarantine policy with random testing. We find that testing is a very close substitute of quarantine and can substantially reduce the need for indiscriminate quarantines.   

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Economic Policy Incentives to Preserve Lives and Livelihoods
Roberto Chang, Andrés Velasco                 
CEPR DP No. 14614 | 16 April 2020

Abstract: The Covid-19 pandemic has motivated a myriad of studies and proposals on how economic policy should respond to this colossal shock. But in this debate it is seldom recognized that the health shock is not entirely exogenous. Its magnitude and dynamics themselves depend on economic policies, and the explicit or implicit incentives those policies provide. To illuminate the feedback loops between medical and economic factors we develop a minimal economic model of pandemics. In the model, as in reality, individual decisions to comply (or not) with virus-related public health directives depend on economic variables and incentives, which themselves respond to current economic policy and expectations of future policies. The analysis yields several practical lessons: because policies affect the speed of virus transmission via incentives, public health measures and economic policies can complement each other, reducing the cost of attaining desired social goals; expectations of expansionary macroeconomic policies during the recovery phase can help reduce the speed of infection, and hence the size of the health shock; the credibility of announced policies is key to rule out both self-fulfilling pessimistic expectations and time inconsistency problems. The analysis also yields a critique of the current use of SIR models for policy evaluation, in the spirit of Lucas (1983).

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More CEPR discussion papers focusing on COVID-19 economic analysis can be found below:

DP14631 Global Behaviors and Perceptions in the COVID-19 Pandemic
Author(s): Thiemo Fetzer, Marc Witte, Lukas Hensel, Jon M. Jachimowicz, Johannes Haushofer, Andriy Ivchenko, Stefano Caria, Elena Reutskaja, Christopher Roth, Stefano Fiorin, Margarita Gomez, Gordon Kraft-Todd, Friedrich Goetz, Erez Yoeli

DP14629 Social Distancing and Supply Disruptions in a Pandemic
Author(s): Giancarlo Corsetti, Martin Bodenstein, Luca Guerrieri

DP14627 A Model of Asset Price Spirals and Aggregate Demand Amplification of a "Covid-19" Shock
Author(s): Ricardo Caballero, Alp Simsek

DP14618 Poverty and Economic Dislocation Reduce Compliance with COVID-19 Shelter-in-Place Protocols
Author(s): Austin L. Wright, Konstantin Sonin, Jesse Driscoll, Jarnickae Wilson

DP14612 On the Optimal "Lockdown" During an Epidemic
Author(s): Martin Gonzalez-Eiras, Dirk Niepelt

DP14611 Which jobs are done from home? Evidence from the American Time Use Survey
Author(s): Lena Hensvik, Thomas Le Barbanchon, Roland Rathelot

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