On the optimal ‘lockdown’ during an epidemic
03 June, 2020
Network member Dirk Niepelt and coauthor Martín Gonzalez-Eiras embed lockdown choice in a simplified SIR model and solve for the optimal length and intensity of lockdown, assuming a trade-off between health and output.
The optimal policy reflects the rate of time preference, epidemiological factors, the hazard rate of vaccine discovery, learning effects in the health care sector, and the severity of output losses due to a lockdown. The optimal reaction to a Covid-19 shock as currently experienced by the US triggers a reduction in economic activity by two thirds, for about 50 days, or approximately 9.5 percent of annual GDP.
The paper is part of the series Covid Economics, Vetted and Real-Time Papers, from CEPR, and can be found here.