Working Paper: CEPR ID: DP16112
Authors: Sweder van Wijnbergen
Abstract: The irreversibility of dying coupled with gradual information acquisition over time on the likely arrival and eventual effectiveness of vaccines confers a real option value to lockdown strategies that delay the incidence of a pandemic. We show the analogy to binary options and provide apricing formula quantifying the option value embedded in a stochastic vaccine arrival process. The case for lockdown strategies becomes stronger the more likely vaccine discovery is, and the less uncertainty exists about its effectiveness.
Keywords: pandemic dynamics; stochastic vaccination arrival; information irreversibility; lockdowns; real options
JEL Codes: G12; G13; G18
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| lockdowns (H76) | access to vaccines (I14) |
| lockdowns (H76) | delay in virus incidence (C41) |
| delay in virus incidence (C41) | access to vaccines (I14) |
| probability of vaccine discovery (C46) | effectiveness of lockdowns (E65) |
| uncertainty about vaccine effectiveness (D89) | effectiveness of lockdowns (E65) |