Optimal Covid-19 Quarantine and Testing Policies

42 Pages Posted: 8 May 2020

See all articles by Facundo Piguillem

Facundo Piguillem

Einaudi Institute for Economics and Finance (EIEF)

LIYAN SHI

Einaudi Institute for Economics and Finance

Date Written: April 2020

Abstract

Many countries are taking measures stopping productive activities to slow down the spread of COVID-19. At times these measures have been criticized as being excessive and too costly. In this paper we make an attempt to understand the optimal response to an infectious disease. We find that the observed policies are very close to a simple welfare maximization problem of a planner who tries to stop the diffusion of the disease. These extreme measures seem optimal in spite of the high output cost that it may have in the short run, and for various curvatures of the welfare function. The desire for cost smoothing reduces the intensity of the optimal quarantine while extending it for longer, but it still amounts to reducing economic activity by at least 40%. We then study the possibility of either complementing or substituting the quarantine policy with random testing. We find that testing is a very close substitute of quarantine and can substantially reduce the need for indiscriminate quarantines.

Keywords: COVID-19, Optimal quarantine, Optimal testing, Welfare cost of quarantines

JEL Classification: E1, E65, H12, I1

Suggested Citation

Piguillem, Facundo and SHI, LIYAN, Optimal Covid-19 Quarantine and Testing Policies (April 2020). CEPR Discussion Paper No. DP14613, Available at SSRN: https://ssrn.com/abstract=3594243

Facundo Piguillem (Contact Author)

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

Via Sallustiana, 62
Rome, 00187
Italy

LIYAN SHI

Einaudi Institute for Economics and Finance ( email )

Via Due Macelli, 73
Rome, 00187
Italy

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