Discussion paper

DP15439 Static and Dynamic Inefficiencies in an Optimizing Model of Epidemics

In an optimizing model of epidemics several externalities arise when agents
shield to avoid infection. Optimizing behaviour delays herd immunity but
also reduces overall infections to approximately the minimum consistent with
herd immunity. For reasonable parameter values, and with no vaccine, we find that agents delay too much because of a rat race to
shield: they shield too much in the hope that others catch the disease and
reach herd immunity. This and other externalities drive large wedges between
private and social outcomes. The expectation of a vaccine reverses the
effects, and agents shield too little.

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Citation

Garibaldi, P, C Pissarides and E Moen (eds) (2020), “DP15439 Static and Dynamic Inefficiencies in an Optimizing Model of Epidemics”, CEPR Press Discussion Paper No. 15439. https://cepr.org/publications/dp15439