Lockdowns as Options

Abstract

I show that the irreversibility of dying coupled with gradual information acquisition over time on the likely arrival and eventual effectiveness of vaccines confers a real option value to lockdown strategies that delay the incidence of a pandemic.The case for lockdown strategies becomes stronger the more likely vaccine discovery is, and the less uncertainty exists about its effectiveness.

Keywords: Pandemic Dynamics, Stochastic Vaccine arrival, information acquisition, irreversibility, lockdowns, real options

JEL Classification: G12, G13, G18