Optimal Vaccine Policies: Spillovers and Incentives

Nikhil Vellodi and Joshua Weiss

No 21-06, Working Paper from Federal Reserve Bank of Richmond

Abstract: We offer a novel theoretical framework to study optimal vaccination policies. The key features of the model are that agents: 1) differ both in their potential exposure (x) to others and vulnerability (y​) to severe illness, 2) exert negative externalities through interaction, and 3) can take voluntary preventative measures, for instance self-isolation. Our main result is a complete characterization of the second-best policy. Three striking features emerge. First, it is non-monotone – people with intermediate y are vaccinated more than those with either low or high y. Second, it exhibits an exposure premium among those who do not self-isolate – people with higher x require lower overall risk, xy, to be vaccinated. Third, for those who voluntarily self-isolate, it is invariant to y, depending only upon x. Numerical results demonstrate that policies vaccinating only the most vulnerable perform significantly worse than other simple heuristics, especially when supplies are limited.

Pages: 47
Date: 2021-03-24
New Economics Papers: this item is included in nep-mic
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