NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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COVID-19 and the Welfare Effects of Reducing Contagion

Robert S. Pindyck

NBER Working Paper No. 27121
Issued in May 2020
NBER Program(s):Environment and Energy Economics, Economic Fluctuations and Growth, Health Economics, Public Economics, Productivity, Innovation, and Entrepreneurship

I use a simple SIR model, augmented to include deaths, to elucidate how pandemic progression is affected by the control of contagion, and examine the key trade-offs that underlie policy design. I illustrate how the cost of reducing the "reproduction number" R0 depends on how it changes the infection rate, the total and incremental number of deaths, the duration of the pandemic, and the possibility and impact of a second wave. Reducing R0 reduces the number of deaths, but extends the duration (and hence economic cost) of the pandemic, and it increases the fraction of the population still susceptible at the end, raising the possibility of a second wave. The benefit of reducing R0 is largely lives saved, and the incremental number of lives saved rises as R0 is reduced. But using a VSL estimate to value those lives is problematic.

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Document Object Identifier (DOI): 10.3386/w27121

 
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