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COVID-19

The economics of pandemics

Posted by e-axes on March 19, 2020

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Pandemics and fear

Epstein and al. use both nonlinear dynamical systems and agent-based computation, to model two interacting contagion processes: one of disease and one of fear of the disease. They find that:

  • Scared individuals–whether sick or not–may remove themselves from circulation with some probability, which affects the contact dynamic, and thus the contagion process. If individuals,  emboldened by the falling disease incidence, recover from fear and return to circulation prematurely, the coupled dynamics become quite rich, and can include multiple waves of infection. This is what happened with the 1918 Spanish Flu.
  • Fear induced flight of few infected people increases not only contagion dramatically, but it also increases the rapidity and geographic scope of the epidemic.


Coupled Contagion Dynamics of Fear and Disease: Mathematical and Computational Explorations
Authors: Joshua M. Epstein, Jon Parker, Derek Cummings, Ross A. Hammond
From: Brookings, Johns Hopkins University

Flattening the curve?

Joshua Gans points out that we can either minimize the short-term (this year’s) cost of the pandemic or minimize the mid-term costs of the pandemic, but not both. He argues that flattening the curve through social distancing is not enough as in reality the health care system capacity is likely much lower than the one necessary to accommodate even the flattened curve.


The alternative: Surf the curve by dramatically increasing health care capacity. In order to do that, governments need to place the military in charge of health care expansion nation-wide, abandon market processes of resource allocation and move to a planned economy.


A War Footing: Surfing the Curve
By: Joshua Gans – University of Toronto

The inclusive cost of pandemics

In this paper, Fan and al. use findings from economic literature to generate an estimate of pandemic cost that is inclusive of both income loss and the cost of elevated mortality. Their estimates suggest:

  • For moderately severe pandemics about 40% of inclusive cost results from income loss. For severe pandemics this fraction declines to 12%: the intrinsic cost of elevated mortality becomes completely dominant.
  • The estimates of mortality cost as a % of GNI range from around 1.6% in lower-middle income countries down to 0.3% in high-income countries, mostly as a result of much higher pandemic death rates in lower-income environments.

The Inclusive Cost of Pandemic Influenza Risk
Authors: Victoria Y. Fan, Dean T. Jamison, Lawrence H. Summers
From: University of Hawaii,  University of California, San Francisco, Harvard University

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