Private agent vs. social planner in COVID-19 mitigation

April 16, 2020

Topics: Quote of the Day

By Callum J. Jones, Thomas Philippon, Venky Venkateswaran
National Bureau of Economic Research, April 2020

We study the response of an economy to an unexpected epidemic. Households mitigate the spread of the disease by reducing consumption, reducing hours worked, and working from home. Working from home is subject to learning-by-doing and the capacity of the health care system is limited. A social planner worries about two externalities, an infection externality and a healthcare congestion externality. Private agents’ mitigation incentives are weak and biased. We show that private safety incentives can even decline at the onset of the epidemic. The planner, on the other hand, implements front-loaded mitigation policies and encourages working from home immediately. In our calibration, assuming a CFR of 1% and an initial infection rate of 0.1%, private mitigation reduces the cumulative death rate from 2.5% of the initially susceptible population to about 1.75%. The planner optimally imposes a drastic suppression policy and reduces the death rate to 0.15% at the cost of an initial drop in consumption of around 25%.

https://www.nber.org…

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Polarization and Public Health: Partisan Differences in Social Distancing during the Coronavirus Pandemic; NBER Working Paper No. 26946

By Hunt Allcott, Levi Boxell, Jacob C. Conway, Matthew Gentzkow, Michael Thaler, David Y. Yang
National Bureau of Economic Research, April 2020

We study partisan differences in Americans’ response to the COVID-19 pandemic. Political leaders and media outlets on the right and left have sent divergent messages about the severity of the crisis, which could impact the extent to which Republicans and Democrats engage in social distancing and other efforts to reduce disease transmission. We develop a simple model of a pandemic response with heterogeneous agents that clarifies the causes and consequences of heterogeneous responses. We use location data from a large sample of smartphones to show that areas with more Republicans engage in less social distancing, controlling for other factors including state policies, population density, and local COVID cases and deaths. We then present new survey evidence of significant gaps between Republicans and Democrats in beliefs about personal risk and the future path of the pandemic.

https://www.nber.org…

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Comment:

By Don McCanne, M.D.

These two timely papers on the coronavirus pandemic should be of interest to single payer supporters.

One paper shows the different results in mitigation efforts by a private agent (the private sector) and a social planner (the government). The impact on infection rates and health care congestion are such that the reduction in mortality is much greater under the social planner than it is under the private agent. The private agents’ mitigation incentives are weak and biased.

The other paper presents the interesting observation that political polarization makes a difference. Republicans engage in less social distancing than do Democrats, which increases both personal risk and population risk.

These papers seem to confirm that social solidarity is more effective than simply applying individual responsibility to problems that affect not only individuals but society at large. Single payer Medicare for All is an excellent example of the benefits of solidarity when contrasted with individual purchase of private health insurance.

What is ironic is that social solidarity is not only more effective for the population as a whole, but it is also more effective for the individual. Yet our political polarization perpetuates this illogical divide.

PNHP does not support any political parties, but we do support policies that are designed to protect and improve the health of all. We wish all political parties did as well.

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