Working Paper: CEPR ID: DP15386
Authors: Piero Gottardi; Alberto Bisin
Abstract: In the context of an epidemic, a society is forced to face a complex system of externalities in consumption and in production. Command economy interventions can support Efficient allocations at the cost of severe information requirements. Competitive markets for infection rights (alternatively, Pigouvian taxes) can guarantee instead efficiency without requiring direct policy interventions on the activity of agents and firms. We demonstrate that this is the case also when the infections cannot be associated to the activities which originated them; and moral hazard then ensues. Finally, we extend the analysis to situations where governments have only incomplete information regarding the values of the parameters of the infection process or of firms' production processes.
Keywords: epidemic; externalities; pigouvian taxes; infection rights
JEL Codes: H23; D62; D82
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Command Economy Interventions (P35) | Efficient Allocations (D61) |
| Command Economy Interventions (P35) | Inefficiencies (D61) |
| Markets for Infection Rights (D45) | Decentralized Efficient Allocations (D61) |
| Markets for Infection Rights (D45) | Reduction of Infections (I14) |
| Pigouvian Taxes (H23) | Induced Efficiency (D61) |
| Pigouvian Taxes (H23) | Reduced Activities Generating Infections (I12) |
| Incomplete Information (D83) | Inefficiencies (D61) |