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.