Working Paper

Endogenous Social Distancing in an Epidemic

Abstract: I present a model where work implies social interactions and the spread of a disease is described by an SIR-type framework where both susceptible and infectious are asymptomatic. Upon the outbreak of a disease a lower contact rate can be achieved at the cost of lower consumption. Individuals do not internalize the effects of their decisions on the evolution of the epidemic while the planner does. Specifically, the planner internalizes that a low contact rate early in the epidemic implies a low stock of infectious in the future; and a low stock of infectious in the future permits an increase in the contact rate without risking additional infections. Since a low contact rate is associated with low consumption, the planner effectively substitutes consumption early in the epidemic for consumption later. The individual's response does not, hence the planner obtains a flatter infection curve than that generated by the individual's response, even though the planner's objective is not to "flatten the curve."

https://doi.org/10.20955/wp.2020.013

Bibliographic Information

Provider: Federal Reserve Bank of St. Louis

Part of Series: Working Papers

Publication Date: 2020-06

Number: 2020-013

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• Working Paper Revision: The Mechanics of Individually- and Socially-Optimal Decisions during an Epidemic