Willingness to Pay for Morbidity and Mortality Risk-Reductions during An Epidemic. Theory and Preliminary Evidence from COVID-19

19 Pages Posted: 4 May 2020

Date Written: April 30, 2020

Abstract

The COVID-19 pandemic and the strong social distancing measures adopted by governments around the world provide an ideal scenario to evaluate the trade-off between lives saved and morbidity avoided on the one hand and reduced economic resources on the other. We adapt the standard model of willingness to pay (WTP) for mortality/morbidity risk reductions by incorporating a number of aspects that are highly relevant during an epidemic; namely, health care capacity constraints, dynamic aspects of prevention (i.e. interventions aimed at flattening the epidemic curve), high uncertainty about key epidemiological parameters, and distributional issues due to high heterogeneity in the underlying risks. The calibration of the model generates a WTP of the order of 20 percent of GDP. Thus, the benefits in terms of lives saved and morbidity avoided can well justify the enormous economic costs generated by social distancing interventions. There is, however, significant heterogeneity in WTP estimates depending on the degree of vulnerability to infection risk (e.g. by age), implying a large redistribution of income and quality of life.

Keywords: COVID-19, willingness to pay, value of statistical life

JEL Classification: D8, I1, I38

Suggested Citation

Echazu, Luciana and Nocetti, Diego, Willingness to Pay for Morbidity and Mortality Risk-Reductions during An Epidemic. Theory and Preliminary Evidence from COVID-19 (April 30, 2020). Available at SSRN: https://ssrn.com/abstract=3589907 or http://dx.doi.org/10.2139/ssrn.3589907

Luciana Echazu

Clarkson University ( email )

United States

Diego Nocetti (Contact Author)

Clarkson University ( email )

Potsdam, NY 13699-5780
United States

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