Abstract |
This paper examines the socially optimal lockdown and travel
(social activity) restriction policies for communicable virus including
COVID-19. In our simple model, we exploit the remarkable similarity in
the structure of external costs causing market failure between the
socially optimal choices of the COVID-19 pandemic case and the socially
optimal urban traffic congestion level. By identifying this similarity,
the results obtained from our simple model allow for future pandemic
researchers to use the well-established research methodologies for
designing socially optimal traffic levels and associated policy tools to
find the socially optimal lockdown and travel restrictions. The key
results obtained from our COVID-19 model are: (1) individuals do not
internalize the external cost of infection risks they impose on others
and health care system when making their own travel (social-activity)
decisions; In order to induce individual travel decision makers to
internalize this external cost, the government actions are necessary;
The travel restrictions via lockdown or monetary penalty is one form of
such actions; (2) the existence of external cost implies that the
socially optimal length of lockdown is always longer than the privately
optimal length of the lockdown period; (3) the strictness of the travel
restriction and the amount of violation penalty should be higher in the
areas with high population density and in larger cities because the
external cost of spreading virus by a traveler would be higher. The
monetary penalty in this model resembles the classical Pigouvian tax,
which should increase with the city's population, people density, and
economic prosperity; (4) when a government subsidizes or fully covers
medical expenses of COVID-19 patients, stricter travel restrictions with
heavier penalties are required. This is to avoid crowding out of the
health care system. |