Covid-19: Erroneous Modelling and its Policy Implications

Abstract

Research in Economics on COVID-19 posits an economy subject to disease dynamics, which are often seriously misspecified in terms of speed and scale. Using a social planner problem, we show that such misspecifications lead to misguided policy. Erroneously characterizing a relatively slow-moving disease engenders dramatically higher death tolls and excessive output loss relative to the correct benchmark. We delineate the latter, employing epidemiological evidence on the timescales of COVID-19 transmission and clinical progression. The resulting sound model is simple, transparent, and novel in Economics.

Keywords: optimal policy, public health, GDP loss, COVID-19, disease dynamics and scale, misspecification

JEL Classification: E61, E65, H12, J17