After an initial period of crisis management, governments must consider what measures against the spread of the novel coronavirus to keep in place until a vaccine or reliable therapy arrives. Informing public policy requires understanding not only disease dynamics and social distancing effectiveness, but also economic features to evaluate the costs and benefits of different actions. This study adapts a workhorse epidemiological model to account for both age-dependent risks and job-dependent social distancing measures and costs. Simulations calculate the costs of six different degrees of restrictions, with sensitivity analysis to several uncertain underlying disease parameters. A novel contribution is contrasting private cost-benefit calculations with the external costs and benefits to society as a whole. The least-cost policy likely involves continued isolation of all who can work or study at home, while other workers practice strong social distancing. For the US, this strategy saves on the order of $10 trillion as compared to simply isolating vulnerable individuals. The benefits of requiring other workers to stay at home only outweigh the wage losses if social distancing measures are insufficiently effective. Immunity is a critical parameter and its absence dramatically increases the costs of weak actions. Further research into the nonmonetary costs of isolation would be valuable. The value of the risks a single person can impose on the rest of society by not staying at home can be substantial, generally increases as restrictions loosen, and should be weighed against the private benefits of returning to circulation.
Fischer, C (2020), ‘Six Degrees of Separation for COVID-19: The External Costs and Benefits of Extended Distancing for Different Social Groups‘, COVID Economics 25, CEPR Press, Paris & London. https://cepr.org/publications/covid-economics-issue-25#392514_392901_390492
This paper estimates the drop in profits and the equity shortfall triggered by the Covid-19 shock and the subsequent lockdown, using a representative sample of 80,972 Italian firms. We find that a 3-month lockdown entails an aggregate yearly drop in profits of â‚¬170 billion, with an implied equity erosion of â‚¬117 billion for the whole sample, and â‚¬31 billion for firms that became distressed, i.e., ended up with negative book value after the shock. As a consequence of these losses, about 17% of the sample firms, whose employees account for 8.8% of total employment in the sample (about 800,000 employees), become distressed. Small and mediumsized enterprises (SMEs) are affected disproportionately, with 18.1% of small firms, and 14.3% of medium-sized ones becoming distressed, against 6.4% of large firms. The equity shortfall and the extent of distress are concentrated in the Manufacturing and Wholesale Trading sectors and in the North of Italy. Since many firms predicted to become distressed due to the shock had fragile balance sheets even prior to the Covid-19 shock, restoring their equity to their pre-crisis levels may not suffice to ensure their long-term solvency.
Carletti, E, T Oliviero, M Pagano, L Pelizzon and M Subrahmanyam (2020), ‘The COVID-19 Shock and Equity Shortfall: Firm-level Evidence from ItalyThe COVID-19 Shock and Equity Shortfall: Firm-level Evidence from Italy‘, COVID Economics 25, CEPR Press, Paris & London. https://cepr.org/publications/covid-economics-issue-25#392514_392901_390493
We adapt a SEIRD differential model with asymptomatic population and Covid deaths, which we call SEAIRD, to simulate the evolution of COVID-19, and add a Â control function affecting both the diffusion of the virus and GDP, featuring all direct and indirect containment policies; to model feasibility, the control is assumed to be a Â piece-wise linear function satisfying additional constraints. We describe the joint dynamics of infection and the economy and discuss the trade-off between production and fatalities. In particular, we carefully study the conditions for the existence of the optimal policy response and its uniqueness. Uniqueness crucially depends on the marginal rate of substitution between the statistical Â value of a human life and GDP; we show Â an example with a phase transition: above a certain threshold, there is a unique optimal containment policy; below the threshold, it is optimal to abstain from any containment; and at the threshold itself there are two optimal policies. We then explore and evaluate various profiles of various control policies dependent on a small number of parameters.
Aspri, A, E Beretta, A Gandolfi and E Wasmer (2020), ‘Mortality containment vs. Economics opening: Optimal policies in a SEIARD model‘, COVID Economics 25, CEPR Press, Paris & London. https://cepr.org/publications/covid-economics-issue-25#392514_392901_390494
The health, economic and security impacts of the Covid-19 pandemic are playing out in volatile and potentially catastrophic ways, especially in conflict-affected states. The disease arrived in India during a period of heightened public protests, riots and religious polarization. In this paper, I document early evidence of the causal impact of Covid-19 proliferation on conflict risks across Indian districts. I use text-mining of conflict event descriptions to define two new measures of religious and pandemic-related conflict in addition to the standard measures of real-time conflict events provided by The Armed Conflict Location & Event Data Project (ACLED). Event study analysis indicates a sustained decline in conflict after the first Covid-19 case is reported, driven by a decrease in religious conflict and public protests. However, I also document a countervailing increase in the probability of Covid-19 related conflict. Poor districts and districts with low health infrastructure in particular demonstrate an increase in riots. These real-time findings are of first-order importance for policymakers and public administrators straddling a narrowing stringency corridor between maintaining public health and tolerance of containment policies.
Mehrotra, R (2020), ‘Contagion and Conflict: Evidence from India‘, COVID Economics 25, CEPR Press, Paris & London. https://cepr.org/publications/covid-economics-issue-25#392514_392901_390495
We extract aggregate demand and supply shocks for the US economy from real-time survey data on inflation and real GDP growth using a novel identification scheme. Our approach exploits non-Gaussian features of macroeconomic forecast revisions and imposes minimal theoretical assumptions. After verifying that our results for US post-war business cycle fluctuations are largely in line with the prevailing consensus, we proceed to study output and price fluctuations during COVID-19. We attribute two thirds of the decline in 2020:Q1 GDP to a negative shock to aggregate demand. In contrast, regarding the staggeringly large decline in GDP in 2020:Q2, we estimate two thirds of this shock was due to a reduction in aggregate supply. Statistical analysis suggests a slow recovery due to persistent effects of the supply shock, but surveys suggest a somewhat faster rebound with a recovery in aggregate supply leading the way.
Bekaert, G, E Engstrom and A Ermolov (2020), ‘Aggregate Demand and Aggregate Supply Effects of COVID-19: A Real-time Analysis‘, COVID Economics 25, CEPR Press, Paris & London. https://cepr.org/publications/covid-economics-issue-25#392514_392901_390496
How do people balance health/money concerns during a pandemic? And, how does the communication over this trade-off affect individual preferences? We address these questions using a hypothetical field experiment (randomized controlled trial, RCT) involving around 2000 students enrolled in a big university in the south of Italy. We compare four different framings in order to investigate whether a positive and more paternalistic framing which focuses on protective strategies (â€œsafeguardâ€) induces more conservative preferences than a more â€œcrudeâ€ framing which focuses on potential losses (â€œcostsâ€). We find that paternalistic framing on the health side induces individuals to give greater relevance to the health dimension. The effect is sizeable and stronger among females and altruistic individuals. Moreover, irrespective of the framing, we find a large heterogeneity in studentâ€™s preferences over the trade-off. Economics students and students who have directly experienced the economic impact of the pandemic are found to favor polices that take in greater account the economic side of the tradeoff.
Carrieri, V, M De Paola and F Gioia (2020), ‘The impact of communication on preferences for public policies. Evidence from a field experiment on the Covid19 health-wealth trade-off‘, COVID Economics 25, CEPR Press, Paris & London. https://cepr.org/publications/covid-economics-issue-25#392514_392901_390497
The â€œsocial distancingâ€ measures taken to contain the spread of COVID-19 impose economic costs that go beyond the contraction of GDP. Since different occupations are not equally affected, this supply shock may have distributional implications. Here, we evaluate the potential impact of enforced social distancing on wage inequality and poverty across Europe. We compute a Lockdown Working Ability (LWA) index which represents the capacity of individuals to work under a lockdown given their teleworking index ?that we obtain for European occupations using 2018 EU-LFS? and whether their occupation is essential or closed. Combining our LWA index and 2018 EU-SILC, we calculate individualsâ€™ potential wage losses under six scenarios of lockdown. The Lockdown Incidence Curves show striking differential wage losses across the distribution, and we consistently find that both poverty and wage inequality rise in all European countries. These changes increase with the duration of the lockdown and vary with the country under consideration. We estimate an increase in the headcount index of 3 percentage points for overall Europe, while the mean loss rate for the poor is 10.3%, using the 2 months lockdown simulation. In the same scenario, inequality measured by the Gini coefficient increases 2.2% in all Europe, but more than 4% in various countries. When we decompose overall inequality in Europe into between- and within-countries components, both elements significantly increase with the lockdown, being the change of the latter more important.
Palomino, J, J Rodríguez and R Sebastian (2020), ‘Wage inequality and poverty effects of social distancing in Europe‘, COVID Economics 25, CEPR Press, Paris & London. https://cepr.org/publications/covid-economics-issue-25#392514_392901_390498