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Externalities, incentives, government failure, and the Coronavirus outbreak

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This paper derives and simulates a compartmental model of the Coronavirus outbreak in which individuals have self-interested reactions to the threat of infection, proportional to the heterogeneous risk of complications that they face. As long as high-risk individuals perceive infection as sufficiently undesirable, the externalities created by the free circulation of low-risk individuals are positive and potentially reduce the total number of infections by approximately 100 million in the U.S. (including every high-risk individual). In this case, the social interaction of low-risk individuals should be subsidized, according to the same market failure arguments used to justify broad confinement mandates, which constitute government failures.

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  • de Oliveira Souza, Thiago, 2020. "Externalities, incentives, government failure, and the Coronavirus outbreak," Discussion Papers on Economics 12/2020, University of Southern Denmark, Department of Economics.
    • Handle: RePEc:hhs:sdueko:2020_012
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    File URL: https://www.sdu.dk/-/media/files/om_sdu/institutter/ivoe/disc_papers/disc_2020/dpbe12_2020.pdf
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    1. John Dawson & John Seater, 2013. "Federal regulation and aggregate economic growth," Journal of Economic Growth, Springer, vol. 18(2), pages 137-177, June.
    2. Neil M. Ferguson & Derek A. T. Cummings & Christophe Fraser & James C. Cajka & Philip C. Cooley & Donald S. Burke, 2006. "Strategies for mitigating an influenza pandemic," Nature, Nature, vol. 442(7101), pages 448-452, July.
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    RePEc Biblio mentions

    As found on the RePEc Biblio, the curated bibliography for Economics:
    1. > Economics of Welfare > Health Economics > Economics of Pandemics > Specific pandemics > Covid-19 > Health > Distancing and Lockdown > Voluntary

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    More about this item

    Keywords

    Externalities; government failure; Coronavirus; Covid-19; pandemic;
    All these keywords.

    JEL classification:

    • C02 - Mathematical and Quantitative Methods - - General - - - Mathematical Economics
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • H40 - Public Economics - - Publicly Provided Goods - - - General
    • I10 - Health, Education, and Welfare - - Health - - - General

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