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Private versus Social Responses to a Pandemic

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Abstract

What are the socially optimal restrictions on private activity during a pandemic? How do these differ from private decisions? We address these questions by modeling the interactions between epidemiology and the macroeconomy. Unlike the private planner, the social planner accounts for two externalities: the increase in the cost of severe illness associated with more infected individuals, reflecting the capacity constraints of the health care system; and the socioeconomic transmission of the virus from asymptomatic to susceptible individuals. Owing to these externalities, the social planner imposes stricter constraints on socioeconomic activities. Applied to the COVID-19 pandemic, socially optimal restrictions reduce the welfare costs by roughly one percent of GDP.

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  • Miguel Casares & Paul Gomme & Hashmat Khan, 2024. "Private versus Social Responses to a Pandemic," Working Papers 24002, Concordia University, Department of Economics.
    • Handle: RePEc:crd:wpaper:24002
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    Keywords

    epi-macro; socioeconomic contacts; externality;
    All these keywords.

    JEL classification:

    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • E11 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Marxian; Sraffian; Kaleckian

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