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COVID-19 Misperception and Macroeconomy

Author

Listed:
  • Masashige Hamano

    (Waseda University)

  • Munechika Katayama

    (Waseda University)

  • So Kubota

    (Waseda University)

Abstract

Uncertainty about the true state of the COVID-19 pandemic has caused substantial difficulty in economic activities and policymaking. How does the uncertainty affect the macroeconomy and infections? What are the policy implications? To answer these questions, this paper presents a model that incorporates people's misperception about the current COVID-19 spread in the market. Our baseline model shows that underestimation about the number of infections reduces the social welfare due to worsening the externality of economic activities on virus transmissions while overestimation improves it to some extent. In an extended model with limited medical resources, we show that a slight breakdown of the medical system can mitigate the underestimation of the risk of being infected. We also consider the quarantine policy that limits both infections and the fall in economic activities for various degrees of misperception. Finally, affecting the extent of misperception about the spread is shown to be an effective policy tool that substitutes proposed containment policies in the literature.

Suggested Citation

  • Masashige Hamano & Munechika Katayama & So Kubota, 2020. "COVID-19 Misperception and Macroeconomy," Working Papers 2016, Waseda University, Faculty of Political Science and Economics.
    • Handle: RePEc:wap:wpaper:2016
    as

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    References listed on IDEAS

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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 > Behavioral issues > Information

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    Cited by:

    1. Beppu, Shotaro & Fujii, Daisuke & Kubota, Hiroyuki & Machi, Kohei & Maeda, Yuta & Nakata, Taisuke & Shibuya, Haruki, 2023. "Cross-regional heterogeneity in health and economic outcomes during the COVID-19 pandemic: An analysis of Japan," Journal of the Japanese and International Economies, Elsevier, vol. 70(C).
    2. Masashige Hamano & Munechika Katayama, 2021. "Epidemics and Macroeconomic Dynamics," Working Papers e162, Tokyo Center for Economic Research.
    3. Satoshi Tanaka, 2022. "Economic Impacts of SARS/MERS/COVID‐19 in Asian Countries," Asian Economic Policy Review, Japan Center for Economic Research, vol. 17(1), pages 41-61, January.
    4. So Kubota, 2021. "The macroeconomics of COVID-19 exit strategy: the case of Japan," The Japanese Economic Review, Springer, vol. 72(4), pages 651-682, October.
    5. Hosono, Kaoru, 2021. "Epidemic and Economic Consequences of Voluntary and Request-based Lockdowns in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 61(C).

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    More about this item

    Keywords

    COVID-19; imperfect information; SIR-macro;
    All these keywords.

    JEL classification:

    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
    • I1 - Health, Education, and Welfare - - Health
    • H0 - Public Economics - - General

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