Optimal Mitigation Policies in a Pandemic: Social Distancing and Working from Home

Abstract

We study the response of an economy to an unexpected epidemic. Households mitigate the spread of the disease by reducing consumption, reducing hours worked, and working from home. Working from home is subject to learning-by-doing and the capacity of the health care system is limited. A social planner worries about two externalities, an infection externality and a healthcare congestion externality. Private agents' mitigation incentives are weak and biased. We show that private safety incentives can even decline at the onset of the epidemic. The planner, on the other hand, implements front-loaded mitigation policies and encourages working from home immediately. In our calibration, assuming a CFR of 1% and an initial infection rate of 0.1%, private mitigation reduces the cumulative death rate from 2.5% of the initially susceptible population to about 1.75%. The planner optimally imposes a drastic suppression policy and reduces the death rate to 0.15% at the cost of an initial drop in consumption of around 25%.

Testing, Voluntary Social Distancing and the Spread of an Infection

“…Third, our paper is related to the recent literature on the effects of pandemics and especially of COVID-19. See, for example, Kruse and Strack [2020], Atkeson [2020], Jones et al [2020], Glover et al [2020, Berger et al [2020], and Birge et al [2020]. More closely related are several papers endogenizing behavior and social distancing in the context of SIR models, such as Leung et al [2018], Toxvaerd [2020], Eichenbaum et al [2020], Farboodi et al [2020], and Maloney and Taskin [2020].…”

Optimal Targeted Lockdowns in a Multi-Group SIR Model

“…Closer to our paper, a number of recent papers have started incorporating economic trade-offs and conducting optimal policy analysis within the SIR framework (e.g. Rowthorn and Toxvaerd, 2020, Eichenbaum, Rebelo and Trabandt 2020a, Alvarez, Argente and Lippi 2020, Jones, Philippon and Venkateswaran, 2020, Farboodi, Jarosch and Shimer, 2020and Garriga et al, 2020. 7 All of the papers undertaking an optimal control analysis have worked with single-group models.…”

Optimal Lockdown in a Commuting Network

“…Studies of optimal control of epidemics in single-location economic models include Goldman and Lightwood (2002) and Rowthorn and Toxvaerd (2012) and, in the context of Covid-19, Atkeson (2020b), Alvarez et al (2020), Jones et al (2020), Piguillem and Shi (2020), Rowthorn (2020), and Rowthorn and Toxvaerd (2020), among others. Acemoglu et al (2020), Baqaee et al (2020), and Glover et al (2020) among others study lockdown with heterogeneous agents.…”