As part of the Joint webinar series organised by the Department of International Economics and the CEPR,  we are pleased to invite you to an online public talk by Professor Anton Korinek. He will present his paper

COVID-19 Infection Externalities: Pursuing Herd Immunity or Containment?

coauthored with Zachary Bethune and and published in the Covid  Economics,  Vetted  and  Real-Time Papers series (CEPR Press, Issue 11, April 2020).

Register for this event and join live.

Abstract: We  analyze  the  externalities  that  arise  when  social  and  economic  interactions  transmit  infectious  diseases  such  as  COVID-19.  Public  health  measures  are  essential  because  individually  rational  agents  do  not  internalize  that  they  impose  infection  externalities  upon  others.  In  an  SIR  model  calibrated  to  capture  the  main  features  of  COVID-19  in  the  US  economy,  we  show  that  private  agents  perceive  the  cost  of  an  additional  infection  to  be  around  $80k  whereas  the  social  cost  including  infection  externalities  is  more  than  three  times  higher, around $286k. This misvaluation has stark implications for how  society  ultimately  overcomes  the  disease:  individually  rational  susceptible agents act cautiously to atten the curve of infections, but the  disease  is  not  overcome  until  herd  immunity  is  acquired,  with  a  deep  recession  and  slow  recovery  lasting  several  years.  By  contrast,  the  socially  optimal  approach  in  our  model  isolates  the  infected  and  quickly  contains  the  disease,  producing  a  much  milder  recession.  If  the  infected  and  susceptible  cannot  be  targeted  independently,  then  containment  is  far  costlier:  it  remains  optimal  for  standard  statistical  values  of  life  but  not  if  only  the  economic  losses  from  lost  lives are counted.

The event will be moderated by Professor Cédric Tille.