Scandinavian Working Papers in Economics

Working Papers,
Lund University, Department of Economics

No 2020:8: Optimal Trade-Off between Economic Activity and Health during an Epidemic

Tommy Andersson (), Albin Erlanson (), Daniel Spiro () and Robert Östling ()
Additional contact information
Tommy Andersson: Department of Economics, Lund University, Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund, Sweden
Albin Erlanson: Department of Economics, University of Essex, Postal: Wivenhoe Park Colchester, CO4 3SQ, England
Daniel Spiro: Department of Economics, Uppsala University, Postal: P.O. Box 513, 751 20 Uppsala, Sweden.
Robert Östling: Department of Economics, Stockholm School of Economics, Postal: P.O. Box 6501, 113 83 Stockholm, Sweden

Abstract: Abstract: This paper considers a simple model where a social planner can influence the spread-intensity of an infection wave, and, consequently, also the economic activity and population health, through a single parameter. Population health is assumed to only be negatively affected when the number of simultaneously infected exceeds health care capacity. The main finding is that if (i) the planner attaches a positive weight on economic activity and (ii) it is more harmful for the economy to be locked down for longer than shorter time periods, then the optimal policy is to (weakly) exceed health care capacity at some time.

Keywords: Covid-19 pandemic; SI-model; economic activity; health; optimal policy

JEL-codes: E23; E27; E60; E65

13 pages, May 15, 2020

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