Maximize Utility subject to R≤1: A Simple Price-Theory Approach to Covid-19 Lockdown and Reopening Policy

Eric Budish

No 28093, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper presents a simple price-theory approach to Covid-19 lockdown and reopening policy. The key idea is to conceptualize R ≤ 1 as a constraint, allowing traditional economic and societal goals to be the policy objective, all within a simple static optimization framework. This approach yields two main insights. First, the R ≤ 1 constraint imposes a disease-transmission budget on society. Society should optimally spend this budget on the activities with the highest ratio of utility to disease-transmission risk, dropping activities with too low a ratio of utility to risk. Second, masks, tests, and other simple interventions increase activities' utility-to-risk ratios, and hence expand how much activity society can engage in and utility society can achieve while staying within the R ≤ 1 budget. A simple numerical example, based on estimates from the medical literature for R0 and the efficacy of facemasks and complementary measures, suggests the potential gains are enormous. Overall, the formulation provides economics language for a policy middle ground between society-wide lockdown and ignore-the-virus, and a new infectious threat response paradigm alongside “eradicate” and “minimize”.

JEL-codes: C61 D47 D6 D7 E6 H12 I1 I18 L51 (search for similar items in EconPapers)
Date: 2020-11
New Economics Papers: this item is included in nep-mac, nep-mic and nep-upt
Note: EFG EH IO LE PE TWP
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Citations: View citations in EconPapers (13)

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