Working Paper: CEPR ID: DP8112
Authors: Flavio Toxvaerd
Abstract: This paper studies a model of disease propagation in which agents can control their exposure to infection by engaging in costly preventive behavior. Agents are assumed to be fully rational, strategically sophisticated and forward-looking. I show that on the transition path, optimal behavior is Markovian, stationary and myopic and there are no contemporaneous externalities. In steady state, in which infection is endemic, there are strategic substitutes. Individuals over-expose themselves to infection, leading to sub-optimally high steady state disease prevalence. Infectivity-reducing measures such as pre-exposure prophylaxis lead to strictly worse steady state levels of disease prevalence. While revealed preferences show that the first-best level of welfare must increase, rational disinhibition, which makes increased exposure to infection a rational response to such measures, may lead to decreased welfare under decentralization.
Keywords: Economic Epidemiology; Preventive Behavior; Rational Disinhibition; Risk Compensation
JEL Codes: C73; I18
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Centralized planner (P11) | lower disease prevalence (I12) |
| Decentralized decision-making (D70) | higher disease prevalence (I12) |
| Myopic behavior (D01) | higher steady-state disease prevalence (I12) |
| Subsidies for prevention (H51) | crowd out individual efforts (O36) |
| crowd out individual efforts (O36) | increased disease prevalence (I12) |
| Infectivity-reducing measures (L15) | higher steady-state disease prevalence (I12) |
| Continual preventive measures (C41) | insufficient for disease eradication (Q16) |
| Need for treatment or vaccination (I12) | disease eradication (Q16) |
| Optimal behavior (Markovian, stationary, myopic) (L21) | lack of contemporaneous externalities (D62) |
| Decentralized setting (H77) | individuals overexpose themselves to infection (I12) |