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A Simple Planning Problem forCOVID-19 Lockdown

Fernando Alvarez, David Argente and Francesco Lippi
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Fernando Alvarez: University of Chicago and NBER

No 2005, EIEF Working Papers Series from Einaudi Institute for Economics and Finance (EIEF)

Abstract: We study the optimal lockdown policy for a planner who wants to control the fatalities of a pandemic while minimizing the output costs of the lockdown. We use the SIR epidemiology model and a simple linear economy to formalize the planner’s dynamic control problem. The optimal policy depends on the fraction of infected and of susceptible in the population. We parametrize the model using micro data on theCOVID19 pandemic and the economic breadth of the lockdown. The quantitative analysis identifies the features that shape the intensity and duration of the optimal lockdown policy. Our baseline parametrization is conditional on a 1% of infected agents at the outbreak, no cure for the disease, and the possibility of testing (identifying those who acquired immunity to the disease). The optimal policy prescribes a severe lockdown beginning two weeks after the outbreak, covers 60% of the population after a month, and is gradually withdrawn covering 20% of the population after 3 months. The intensity of the lockdown depends critically on the gradient of the fatality rate as a function of the infected, and also on the assumed value of a statistical life. The absence of testing increases the economic costs of the lockdown, leads to worse welfare outcomes and shortens the duration of the optimal lockdown.

Pages: 30 pages
Date: 2020, Revised 2020-03
New Economics Papers: this item is included in nep-hea
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Working Paper: A Simple Planning Problem for COVID-19 Lockdown (2020) Downloads
Working Paper: A Simple Planning Problem for COVID-19 Lockdown (2020) Downloads
Working Paper: A Simple Planning Problem for COVID-19 Lockdown (2020) Downloads
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