Externalities, incentives, government failure, and the Coronavirus outbreak

Thiago de Oliveira Souza

No 12/2020, Discussion Papers on Economics from University of Southern Denmark, Department of Economics

Abstract: 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.

Keywords: Externalities; government failure; Coronavirus; Covid-19; pandemic (search for similar items in EconPapers)
JEL-codes: C02 D62 H40 I10 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2020-11-02
New Economics Papers: this item is included in nep-hea and nep-ore
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