A Simple Planning Problem for COVID-19 Lockdown

31 Pages Posted: 7 Apr 2020

See all articles by Fernando Alvarez

Fernando Alvarez

University of Chicago - Department of Economics; National Bureau of Economic Research (NBER)

David Argente

Pennsylvania State University

Francesco Lippi

University of Sassari

Multiple version iconThere are 3 versions of this paper

Date Written: April 6, 2020

Abstract

We study the optimal lockdown policy for a planner who wants to control the fatalities of a pandemic while minimizing the output costs of the lockdown. We use the SIR epidemiology model and a linear economy to formalize the planners dynamic control problem. The optimal policy depends on the fraction of infected and susceptible in the population. We parametrize the model using data on the COVID-19 pandemic and the economic breadth of the lockdown. The quantitative analysis identifies the features that shape the intensity and duration of the optimal lockdown policy. Our baseline parametrization is conditional on a 1% of infected agents at the outbreak, no cure for the disease, and the possibility of testing. The optimal policy prescribes a severe lockdown beginning two weeks after the outbreak, covers 60% of the population after a month, and is gradually withdrawn covering 20% of the population after 3 months. The intensity of the lockdown depends on the gradient of the fatality rate as a function of the infected, and on the assumed value of a statistical life. The absence of testing increases the economic costs of the lockdown, leads to worse welfare outcomes and shortens the duration of the optimal lockdown.

Suggested Citation

Alvarez, Fernando and Argente, David and Lippi, Francesco, A Simple Planning Problem for COVID-19 Lockdown (April 6, 2020). University of Chicago, Becker Friedman Institute for Economics Working Paper No. 2020-34, Available at SSRN: https://ssrn.com/abstract=3569911 or http://dx.doi.org/10.2139/ssrn.3569911

Fernando Alvarez (Contact Author)

University of Chicago - Department of Economics ( email )

1126 East 59th Street
Social Science Building, Room 442
Chicago, IL 60637
United States
773-702-4412 (Phone)
773-702-8490 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

David Argente

Pennsylvania State University ( email )

606 Kern Building
State College, PA 16801
United States

Francesco Lippi

University of Sassari ( email )

Piazza Universita
Sassari, 07100
Italy

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
372
Abstract Views
1,282
rank
83,612
PlumX Metrics