The ongoing discourse about COVID-19 testing revolves around undertesting (i.e., insufficient testing capacity relative to demand). An important yet little studied systematic issue is overdiagnosis (i.e., positive diagnoses for patients with negligible viral loads): recent evidence shows U.S. laboratories have adopted a hyper-sensitive diagnosis criterion for COVID-19 testing, such that up to an estimated 90% of positive diagnoses are for minuscule virus loads. Motivated by this situation, we develop a theory of testing for COVID-19 that explains both undertesting and overdiagnosis. We show that a laboratory has an incentive to inflate the diagnosis criterion, which generates a higher diagnosis-driven demand as a result of contact-tracing efforts, albeit while dampening demand from disease transmission. An inflated diagnosis criterion prompts the laboratory to build a higher testing capacity, which may not fully absorb the inflated demand, so undertesting arises. Finally, we examine a social plannerâ€™s problem of whether to mandate the laboratory to report viral load along with its diagnosis, such that a physician or contact tracer can make informed triage decisions. The social planner may prefer not to mandate viral load reporting, because it induces a higher testing capacity and may help reduce disease transmission.
Dai, T and S Singh (2020), ‘COVID-19 diagnosis and viral load reporting: A theory of overdiagnosis and undertesting‘, COVID Economics 58, CEPR Press, Paris & London. https://cepr.org/publications/covid-economics-issue-58#392514_392934_390669
We incorporate age-specific socio-economic interactions in a SIR macroeconomic model to study the role of demographic factors for the COVID-19 epidemic evolution, its macroeconomic effects and possible containment measures. Â We capture the endogenous response of rational individuals who freely reduce consumption- and labor-related personal exposure to the virus, with interactions that can vary within and across ages, while fail to internalize the impact of their actions on others. The endogenous response amplifies the economic losses, but it implies that the individual behavioral response to the risk of infection is an important ally of the needed policy measures to contain the spread of the virus. Investigating the effect of different combinations of economic shutdown and age-targeted social distancing, we find that there are considerable economic benefits from measures targeting the elderly with higher mortality risk which are not part of the labor force. For any level of social distancing, the implied optimal economic shutdown generates small gains in terms of lives and large output losses over one-year time. These results are confirmed by calibrating the model to match real epidemic and economic data in the context of a scenarios exercise.
Giagheddu, M and A Papetti (2020), ‘The macroeconomics of age-varying epidemics‘, COVID Economics 58, CEPR Press, Paris & London. https://cepr.org/publications/covid-economics-issue-58#392514_392934_390670
Understanding the immediate consequences of the COVID-19 pandemic on consumer behaviour is essential for informing the policy makers on the economic cost of strict measures, such as population lockdowns and business shutdowns. Yet, estimating the effect of the health shock on consumption, net of policy restrictions, is challenging because such measures affect consumer choices. South Korea is an interesting case because its policy response in the early stages of the pandemic did not involve such restrictive measures. We exploit this fact to study the consequences of the health shock on consumption. Because the intensity of the pandemic varied greatly across administrative regions, we are able to quantify the direct effect of the health shock on consumption at the epicentre of the pandemic and to compare it with that in locations initially spared from the virus. Further, we quantify spillover effects from the epicentre to the periphery by studying changes in consumption outside of the epicentre. Our results show that consumers adjusted their response as a function of the local and national evolution of the pandemic, refraining from exposing themselves to the health risk in cities and sectors that are relatively more exposed to the virus. This implies that consumersâ€™ voluntary response to the pandemic can contribute to alleviate the trade-off between health and economic objectives, minimising the economic cost and mitigating the spread of the virus.
Kim, C, E Santacreu-Vasut and E Shin (2020), ‘Trade-off between health and wealth? Insights from COVID-19 in South Korea‘, COVID Economics 58, CEPR Press, Paris & London. https://cepr.org/publications/covid-economics-issue-58#392514_392934_390671
This paper estimates the effects of school closure on studentsâ€™ study time and the number of messages sent from teachers to students using an online learning service. We find that both study time and message numbers increased significantly from the beginning of the school closure but they returned to pre-COVID-19 levels when the state of emergency ended in late May 2020. In addition, we find that students with prior access to the online learning service at home and students at higher-quality schools increased their study time more than other students. However, we find no gender differences in these outcomes.
Ikeda, M and S Yamaguchi (2020), ‘Online learning during school closure due to COVID-19‘, COVID Economics 58, CEPR Press, Paris & London. https://cepr.org/publications/covid-economics-issue-58#392514_392934_390672