A Simple Planning Problem for COVID-19 Lockdown

35 Pages Posted: 13 Apr 2020 Last revised: 23 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

Einaudi Institute for Economics and Finance (EIEF)

Multiple version iconThere are 3 versions of this paper

Date Written: April 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 planner's 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 COVID19 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a severe lockdown beginning two weeks after the outbreak, covers 60% of the population after a month, and is gradually withdrawn covering 20% of the population after 3 months.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, and shortens the duration of the optimal lockdown which ends more abruptly. Welfare under the optimal policy with testing is higher, equivalent to a one-time payment of 2% of GDP.

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Suggested Citation

Alvarez, Fernando and Argente, David and Lippi, Francesco, A Simple Planning Problem for COVID-19 Lockdown (April 2020). NBER Working Paper No. w26981, Available at SSRN: https://ssrn.com/abstract=3574445

Fernando Alvarez (Contact Author)

University of Chicago - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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David Argente

Pennsylvania State University ( email )

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United States

Francesco Lippi

Einaudi Institute for Economics and Finance (EIEF) ( email )

Via Due Macelli, 73
Rome, 00187
Italy

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