Behavioral epidemiology: An economic model to evaluate optimal policy in the midst of a pandemic

Abstract: This paper combines a canonical epidemiology model of disease dynamics with government policy of lockdown and testing, and agents' decision to social distance in order to avoid getting infected. The model is calibrated with data on deaths and testing outcomes in the Unites States. It is shown that an intermediate but prolonged lockdown is socially optimal when both mortality and GDP are taken into account. This is because the government wants the economy to keep producing some output and the slack in reducing infection is picked up by social distancing agents. Social distancing best responds to the optimal government policy to keep the effective reproductive number at one and avoid multiple waves through the pandemic. Calibration shows testing to have been effective, but it could have been even more instrumental if it had been aggressively pursued from the beginning of the pandemic. Not having any lockdown or shutting down social distancing would have had extreme consequences. Greater centralized control on social activities would have mitigated further the spread of the pandemic.