Efficient Policy Interventions in an Epidemic

Piero Gottardi and Alberto Bisin

No 15386, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: In the context of an epidemic, a society is forced to face a complex system of externalities in consumption and in production. Command economy interventions can support Efficient allocations at the cost of severe information requirements. Competitive markets for infection rights (alternatively, Pigouvian taxes) can guarantee instead efficiency without requiring direct policy interventions on the activity of agents and firms. We demonstrate that this is the case also when the infections cannot be associated to the activities which originated them; and moral hazard then ensues. Finally, we extend the analysis to situations where governments have only incomplete information regarding the values of the parameters of the infection process or of firms' production processes.

Keywords: Epidemic; Externalities; Pigouvian taxes; Infection rights (search for similar items in EconPapers)
JEL-codes: D62 D82 H23 (search for similar items in EconPapers)
Date: 2020-10
New Economics Papers: this item is included in nep-hea and nep-res
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Journal Article: Efficient policy interventions in an epidemic (2021)
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