Static and Dynamic Inefficiencies in an Optimizing Model of Epidemics

49 Pages Posted: 16 Nov 2020

See all articles by Pietro Garibaldi

Pietro Garibaldi

Bocconi University - Department of Economics; Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

Espen R. Moen

Norwegian Business School; Centre for Economic Policy Research (CEPR)

Christopher A. Pissarides

London School of Economics & Political Science (LSE); Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics; Hong Kong University of Science & Technology (HKUST)

Abstract

In an optimizing model of epidemics several externalities arise when agents shield to avoid infection. Optimizing behaviour delays herd immunity but also reduces overall infections to approximately the minimum consistent with herd immunity. For reasonable parameter values, and with no vaccine, we find that agents delay too much because of a "rat race to shield": they shield too much in the hope that others catch the disease and reach herd immunity. This and other externalities drive large wedges between private and social outcomes. The expectation of a vaccine reverses the effects, and agents shield too little.

Keywords: SIR models, matching model, COVID-19, social distancing, rat race, herd immunity

JEL Classification: A12, I10, J18, D61, D62

Suggested Citation

Garibaldi, Pietro and Moen, Espen R. and Pissarides, Christopher, Static and Dynamic Inefficiencies in an Optimizing Model of Epidemics. IZA Discussion Paper No. 13844, Available at SSRN: https://ssrn.com/abstract=3730442

Pietro Garibaldi (Contact Author)

Bocconi University - Department of Economics ( email )

Via Gobbi 5
Milan, 20136
Italy
+39 02 5836 5422 (Phone)
+39 02 5836 5343 (Fax)

HOME PAGE: http://www.frdb.org/~pietrogaribaldi/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Espen R. Moen

Norwegian Business School ( email )

N-0442 Oslo
Norway
+47 46410786 (Phone)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Christopher Pissarides

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London WC2A 2AE
United Kingdom
+44 20 7955 7513 (Phone)
+44 20 7831 1840 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Hong Kong University of Science & Technology (HKUST) ( email )

Clearwater Bay
Kowloon, 999999
Hong Kong

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