Infection, Acquired Immunity and Externalities in Treatment

22 Pages Posted: 29 Nov 2010

See all articles by Flavio Toxvaerd

Flavio Toxvaerd

University of Cambridge - Faculty of Economics

Date Written: November 2010


This paper considers a model of infectious disease, such as swine flu, in which privately costly treatment confers immunity on recovered individuals. It is shown that under decentralized decision making, infected individuals ignore the externality that their treatment has on susceptible individuals and thus seek treatment only if it is privately optimal to do so. In contrast, a benevolent central planner who does take this externality into account in choosing the level of aggregate treatment, may choose to either eradicate the disease or to retard its eventual dissemination into the population even when individuals would not find it privately optimal to do so. The analysis shows that when immunity from future infection is obtained through recovery, treatment resembles vaccination in its effects on infection dynamics, but important differences remain. Vaccination is shown to more effectively curb infection than does treatment. Last, the inefficiency associated with decentralized decision making can be corrected through subsidized treatment offered on a first-come first-served basis.

Keywords: Acquired immunity, Economic epidemiology, Externalities, Treatment

JEL Classification: C73, I18

Suggested Citation

Toxvaerd, Flavio, Infection, Acquired Immunity and Externalities in Treatment (November 2010). CEPR Discussion Paper No. DP8111, Available at SSRN:

Flavio Toxvaerd (Contact Author)

University of Cambridge - Faculty of Economics ( email )

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