Lockdown Policy Choices, Outcomes and the Value of Preparation Time A stylised model

Christian Buelens

No 143, European Economy - Discussion Papers from Directorate General Economic and Financial Affairs (DG ECFIN), European Commission

Abstract: In the anticipation of a widely accessible vaccine or an effective cure for the Coronavirus disease (COVID 19), governments have resorted to non-pharmaceutical measures, notably lockdowns, to limit the number of infections, without overwhelming their health systems. In the short-run, this new objective of "flattening the epidemic curve" may however be at odds with incumbent ones, such as promoting economic growth. To the extent that the epidemic generates a conflict between these objectives, societies and their decision makers have to arbitrate between them. Using a stylised static model, this paper proposes a policy rule that determines a country’s optimal lockdown intensity as a function of social preferences, the strength of the epidemic and the characteristics of the economy, namely sectoral structure, health care capacity, fiscal space and lockdown compliance. The optimal lockdown determines a set of ‘outcomes’ in terms of welfare, production, income (which is considered to be related to the post-epidemic economic potential) and untreated infections. The model further takes into account that the sequential outbreak of the epidemic has conferred preparation time to some countries, which has raised the mitigation efficiency of lockdowns. Ceteris paribus, the social welfare loss declines the later an outbreak occurs, implying that the first countries affected act as shock absorbers, providing countries hit at a later stage with a ‘windfall benefit’. Collectively, a sequential outbreak is thus less costly than a symmetric one. Separately, the paper also shows how optimal lockdown policies change when there is uncertainty about the strength of the epidemic and mitigation efficiency, respectively, and how targeted measures (e.g. closure of contact-intensive sectors or the protection of vulnerable groups) alter the nature of the income-infections trade-off with respect to general lockdowns.

JEL-codes: D8 E6 I15 I18 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2021-06
New Economics Papers: this item is included in nep-mac
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:euf:dispap:143

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