Working Paper: CEPR ID: DP14612
Authors: Martin Gonzalezeiras; Dirk Niepelt
Abstract: We embed a lockdown choice in a simplified epidemiological model and derive formulas for the optimal lockdown intensity and duration. The optimal policy reflects the rate of time preference, epidemiological factors, the hazard rate of vaccine discovery, learning effects in the health care sector, and the severity of output losses due to a lockdown. In our baseline specification a Covid-19 shock as currently experienced by the US optimally triggers a reduction in economic activity by two thirds, for about 50 days, or approximately 9.5 percent of annual GDP.
Keywords: epidemic; pandemic; lockdown; social distancing; production shortfall; health care system; COVID-19; SIR model; logistic model
JEL Codes: I18
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| economic activity (E20) | infection rates (I14) |
| lockdown measures (P37) | healthcare system (I11) |
| lockdown measures (P37) | future production shortfalls (E23) |
| optimal lockdown policy (C61) | economic activity (E20) |
| optimal lockdown policy (C61) | severity of output losses (E23) |
| vaccine discovery rate (O36) | lockdown intensity (H56) |
| vaccine discovery rate (O36) | lockdown duration (C41) |
| government's program (H53) | economic activity (E20) |
| government's program (H53) | infection rates (I14) |