Economics and Epidemics: Evidence from an Estimated Spatial Econ-SIR Model

RePEc Short ID: pbo762
ORCID iD: 0000-0003-1178-3349

Bognanni, Mark; Hanley, Douglas; Kolliner, Daniel; Mitman, Kurt

doi:10.17016/FEDS.2020.091

Working Paper

Economics and Epidemics: Evidence from an Estimated Spatial Econ-SIR Model

Abstract: Economic analysis of effective policies for managing epidemics requires an integrated economic and epidemiological approach. We develop and estimate a spatial, micro-founded model of the joint evolution of economic variables and the spread of an epidemic. We empirically discipline the model using new U.S. county-level data on health, mobility, employment outcomes, and non-pharmaceutical interventions (NPIs) at a daily frequency. Absent policy or medical interventions, the model predicts an initial period of exponential growth in new cases, followed by a protracted period of roughly constant case levels and reduced economic activity. Nevertheless, if vaccine development proved impossible, and suppression cannot entirely eradicate the disease, a utilitarian policymaker cannot improve significantly over the laissez-faire equilibrium by using lockdowns. Conversely, if a vaccine will arrive within two years, NPIs can improve upon the laissez-faire outcome by dramatically decreasing the number of infectious agents and keeping infections low until vaccine arrival. Mitigation measures that reduce viral transmission (e.g., mask-wearing) both reduce the virus's spread and increase economic activity.

Keywords: Epidemics; Covid-19; Econ-sir; Economic policy;

JEL Classification: E60; I10;

https://doi.org/10.17016/FEDS.2020.091