1. The Hammer and the Dance: Equilibrium and Optimal Policy during a Pandemic Crisis
- Author
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Assenza, Tiziana, Hellwig, Christian, Collard, Fabrice, Dupaigne, Martial, Fève, Patrick, Kankanamge, Sumudu, Werquin, Nicolas, DSR-SCD-UT1C, Service Publications, Toulouse Graduate School défis en économie et sciences sociales quantitatives - - CHESS2017 - ANR-17-EURE-0010 - EURE - VALID, Toulouse School of Economics (TSE), Université Toulouse 1 Capitole (UT1), Université Fédérale Toulouse Midi-Pyrénées-Université Fédérale Toulouse Midi-Pyrénées-École des hautes études en sciences sociales (EHESS)-Centre National de la Recherche Scientifique (CNRS)-Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement (INRAE), ANR-17-EURE-0010,CHESS,Toulouse Graduate School défis en économie et sciences sociales quantitatives(2017), and collard, fabrice
- Subjects
[SHS.ECO]Humanities and Social Sciences/Economics and Finance ,[SHS.ECO] Humanities and Social Sciences/Economics and Finance ,B- ECONOMIE ET FINANCE - Abstract
We develop a comprehensive framework for analyzing optimal economic policy during a pandemic crisis in a dynamic economic model that trades off pandemic-induced mortality costs against the adverse economic impact of policy interventions. We use the comparison between the planner problem and the dynamic decentralized equilibrium to highlight the margins of policy intervention and describe optimal policy actions. As our main conclusion, we provide a strong and novel economic justification for the current approach to dealing with the pandemic, which is different from the existing health policy rationales. This justification is based on a simple economic concept, the shadow price of infection risks, which succinctly captures the static and dynamic trade-offs and externalities between economic prosperity and mortality risk as the pandemic unfolds.
- Published
- 2021