The trade off between prosperity and mortality
Kaplan and al. use HANK and SIR (epidemiological model) models in order to trace out a “pandemic possibility frontier” to evaluate the different policies (health, economic) adopted.
In their model occupations are of mainly two types: the ones that can be substituted by remote work (software engineer, social scientist) and the ones that can’t (waiters, car mechanics). Their model picks up the distributional effects of different health, monetary and fiscal policies.
Their preliminary conclusions suggest:
- Liquidity matters: most exposed households also have lowest
liquidity, may not be able to survive for long without financial help.
- This could significantly affect policy tradeoffs.
Pandemics According to HANK
Authors: Greg Kaplan, Ben Moll, Gianluca Violante
From: University of Chicago, LSE, Princeton University
How do we expand the frontier of how much economic and societal activity is possible while keeping R < 1?
This note suggests that we view R < 1 as an economic constraint, allowing social welfare in the traditional sense (economic activity, societal well-being) to be the policy objective. This formulation highlights two key questions at the intersection of health and economics research in response to the Covid-19 crisis. First, what activities maximize social welfare subject to the constraint that disease-transmission is contained, i.e., R < 1. Second, what are ways to “expand the frontier” of how much social welfare we can achieve while keeping disease-transmission contained. For example, could widespread use of masks and gloves, society-wide campaigns to “wash your hands,” “stay home if sick,” and “don’t touch your face,” and aggressive testing, together allow us to meaningfully increase the level of economic activity and societal well-being that is possible while keeping R <1?
R < 1 as an Economic Constraint: Can We “Expand the Frontier” in the Fight Against Covid-19?
Author: Eric Budish
From: University of Chicago
