Epidemic Responses Under Uncertainty

53 Pages Posted: 29 May 2020

See all articles by Michael Barnett

Michael Barnett

Arizona State University (ASU) - Finance Department

Greg Buchak

Stanford University Graduate School of Business

Constantine Yannelis

University of Chicago, Booth School of Business, Finance, Students

Multiple version iconThere are 2 versions of this paper

Date Written: May 26, 2020

Abstract

We examine how policymakers should react to a pandemic when there is significant uncertainty regarding key parameters relating to the disease. In particular, this paper explores how optimal mitigation policies change when incorporating uncertainty regarding the Case Fatality Rate (CFR) and the Basic Reproduction Rate (R0) into a macroeconomic SIR model in a robust control framework. This paper finds that optimal policy under parameter uncertainty generates an asymmetric optimal mitigation response across different scenarios: when the disease’s severity is initially underestimated the planner increases mitigation to nearly approximate the optimal response based on the true model, and when the disease’s severity is initially overestimated the planner maintains lower mitigation as if there is no uncertainty in order to limit excess economic costs.

Keywords: COVID-19, Coronavirus, Model Uncertainty, Dynamic General Equilibrium

JEL Classification: E1, H0, I1

Suggested Citation

Barnett, Michael and Buchak, Greg and Yannelis, Constantine, Epidemic Responses Under Uncertainty (May 26, 2020). University of Chicago, Becker Friedman Institute for Economics Working Paper No. 2020-72, Available at SSRN: https://ssrn.com/abstract=3610905 or http://dx.doi.org/10.2139/ssrn.3610905

Michael Barnett

Arizona State University (ASU) - Finance Department ( email )

W. P. Carey School of Business
PO Box 873906
Tempe, AZ 85287-3906
United States

Greg Buchak

Stanford University Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States
6507214004 (Phone)
94305 (Fax)

Constantine Yannelis (Contact Author)

University of Chicago, Booth School of Business, Finance, Students ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

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