Externalities, Incentives, Government Failure, and the Coronavirus Outbreak

20 Pages Posted: 1 May 2020

See all articles by Thiago de Oliveira Souza

Thiago de Oliveira Souza

University of Southern Denmark; Danish Finance Institute

Multiple version iconThere are 2 versions of this paper

Date Written: April 23, 2020

Abstract

This paper derives and simulates a compartmental model of the Coronavirus outbreak in which individuals have self-interested reactions to the threat of infection, proportional to the heterogeneous risk of complications that they face. As long as high-risk individuals perceive infection as sufficiently undesirable, the externalities created by the free circulation of low-risk individuals are positive and potentially reduce the total number of infections by approximately 100 million in the U.S. (including every high-risk individual). In this case, the social interaction of low-risk individuals should be subsidized, according to the same market failure arguments used to justify broad confinement mandates, which constitute government failures.

Note: Funding: None.

Conflict of Interest: None.

Keywords: Externalities, government failure, Coronavirus, COVID-19, pandemic

JEL Classification: D62, H4, C02, I10

Suggested Citation

de Oliveira Souza, Thiago, Externalities, Incentives, Government Failure, and the Coronavirus Outbreak (April 23, 2020). Available at SSRN: https://ssrn.com/abstract=3583160 or http://dx.doi.org/10.2139/ssrn.3583160

Thiago De Oliveira Souza (Contact Author)

University of Southern Denmark ( email )

Campusvej 55
DK-5230 Odense, 5000
Denmark

Danish Finance Institute ( email )

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