Working Paper: CEPR ID: DP8111
Authors: Flavio Toxvaerd
Abstract: This paper considers a model of infectious disease, such as swine flu, in which privately costly treatment confers immunity on recovered individuals. It is shown that under decentralized decision making, infected individuals ignore the externality that their treatment has on susceptible individuals and thus seek treatment only if it is privately optimal to do so. In contrast, a benevolent central planner who does take this externality into account in choosing the level of aggregate treatment, may choose to either eradicate the disease or to retard its eventual dissemination into the population even when individuals would not find it privately optimal to do so. The analysis shows that when immunity from future infection is obtained through recovery, treatment resembles vaccination in its effects on infection dynamics, but important differences remain. Vaccination is shown to more effectively curb infection than does treatment. Last, the inefficiency associated with decentralized decision making can be corrected through subsidized treatment offered on a first-come first-served basis.
Keywords: Acquired Immunity; Economic Epidemiology; Externalities; Treatment
JEL Codes: C73; I18
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| decentralized decision-making (D70) | suboptimal treatment levels (I12) |
| treatment (M53) | reduce infection rate (I14) |
| treatment (M53) | increase number of recovered individuals (I12) |
| centralized decision-making (D70) | increased treatment levels (I12) |
| treatment (M53) | influence disease incidence (I12) |