DISEASES AND DEVELOPMENT: A Theory of Infection Dynamics and Economic Behavior

Fidel Perez-Sebastian, Chris Papageorgiou () and Shankha Chakraborty
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Fidel Perez-Sebastian: University of Alicante
Authors registered in the RePEc Author Service: Fidel Perez Sebastian

No 777, 2008 Meeting Papers from Society for Economic Dynamics

Abstract: We propose an economic theory of infectious disease transmission and rational behavior. Diseases are costly due to mortality (infected individuals can die prematurely) and morbidity (lower productivity and quality of life). Our model offers three main insights. First, a greater prevalence of diseases implies a lower savings-investment propensity because of mortality and morbidity. The extent to which preventive health investment can counter this depends on the prevalence rate and, specifically, on the strength of the disease externality. Second, infectious diseases can generate low-growth traps in which income alone can not push the economy out of underdevelopment. This is distinctly different from the development traps found by previous literature. Third, income per se does not cause health when prevalence is high. Successful interventions should therefore be health specific and when possible channeled via the public health delivery system.

Date: 2008
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