A new GLO Discussion Paper shows that the optimal policy response to Covid-19 depends both on the configuration of the contact network and the tolerated infection incidence.
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GLO Discussion Paper No. 667, 2020
An Economic Model of Health-vs-Wealth Prioritization during Covid-19: Optimal Lockdown, Network Centrality, and Segregation – Download PDF
by Pongou, Roland & Tchuente, Guy & Tondji, Jean-Baptiste
GLO Fellow Guy Tchuente
Author Abstract: We address the problem of finding the optimal lockdown and reopening policy during a pandemic like COVID-19 for a social planner who prioritizes health over the economy. Agents are connected through a fuzzy network of contacts, and the planner’s objective is to determine the policy that contains the spread of infection below a tolerable incidence level, and that maximizes the present discounted value of real income, in that order of priority. We show theoretically that the planner’s problem has a unique solution. The optimal policy depends both on the configuration of the contact network and the tolerated infection incidence. Using simulations, we apply these theoretical findings to: (i) quantify the trade-off between the economic cost of the pandemic and the infection incidence allowed by the social planner, and show how this trade-off depends on network configuration; (ii) understand the correlation between different measures of network centrality and individual lockdown probability, and derive implications for the optimal design of surveys on social distancing behavior and network structure; and (iii) analyze how segregation induces differential health and economic dynamics in minority and majority populations, also illustrating the crucial role of patient zero in these dynamics.
More from the GLO Coronavirus Cluster
GLO Discussion Papers are research and policy papers of the GLO Network which are widely circulated to encourage discussion. Provided in cooperation with EconStor, a service of the ZBW – Leibniz Information Centre for Economics, GLO Discussion Papers are among others listed in RePEc (see IDEAS, EconPapers). Complete list of all GLO DPs – downloadable for free.