An Economic Model of Health-vs-Wealth Prioritization During COVID-19: Optimal Lockdown, Network Centrality, and Segregation

Publication date: 23 Nov 2020 | Publication type: NIESR Discussion Paper | External Author(s): Pongou, R; Tchuente, G; Tondji, J | JEL Classification: E61, H12, I18, J15, D85 | NIESR Discussion Paper Number: 521

Abstract

We address the problem of finding the optimal lockdown and reopening policy during a pandemic like COVID-19, for a social planner who prioritizes health over short-term wealth accumulation. Agents are connected through a fuzzy network of contacts, and the planner’s objective is to determine the policy that contains the spread of infection below a tolerable incidence level, and that maximizes the present discounted value of real income, in that order of priority. We show theoretically that the planner’s problem has a unique solution. The optimal policy depends both on the configuration of the contact network and the tolerated infection incidence. Using simulations, we apply these theoretical findings to: (i) quantify the tradeoff between the economic cost of the pandemic and the infection incidence allowed by the social planner, and show how this tradeoff depends on network configuration; (ii) understand the correlation between different measures of network centrality and individual lockdown probability, and derive implications for the optimal design of surveys on social distancing behavior and network structure; and (iii) analyze how segregation induces differential health and economic dynamics in minority and majority populations, also illustrating the crucial role of patient zero in these dynamics.
 

Keyword tags: 
COVID-19
health-vs-wealth prioritization
economic cost
fuzzy networks
net-work centrality
segregation
patient zero
optimally targeted lockdown policy.