Abstract
Several externalities arise when agents shield optimally to avoid infection during an epidemic. We classify externalities into static and dynamic and compare the decentralized and optimal solutions when agents derive utility from social interaction. For low infection costs agents shield too little; for high costs they shield too much because of a “rat race to shield”: they delay social action until other agents contract the disease and society reaches herd immunity. Other externalities drive more wedges between the private and social outcomes. The expectation of a fully effective vaccine that ends the disease faster changes results, reversing excessive shielding.
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Research support from Collegio Carlo Alberto is gratefully acknowledged. We thank Per August Moen for excellent research assistance, and Espen Henriksen for advise on the computational methods. We thank online seminar participants at CEPR, Polytechnic of Torino, Collegio Carlo Alberto, Oslo Macro Group, LSE, University of Chicago Search Conference, Marseille, Norwegian Business School and the Frisch Centre. Moen gratefully acknowledges financial support from the Norwegian Research Council (Grant Number 82061).
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Garibaldi, P., Moen, E.R. & Pissarides, C.A. Static and dynamic inefficiencies in an optimizing model of epidemics. Econ Theory 77, 9–48 (2024). https://doi.org/10.1007/s00199-023-01533-w
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DOI: https://doi.org/10.1007/s00199-023-01533-w