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Anton Korinek is a Professor at the University of Virginia, Department of Economics and Darden School of Business as well as a Research Associate at the NBER, a Research Fellow at the CEPR and a Research Affiliate at the Oxford Future of Humanity Institute Centre for the Governance of AI.
Friday, December 18, 2020, 12PM – 1PM Eastern
Abstract originally published on the speaker’s website at https://www.korinek.com/research/covid19
Should we let individuals decide how much social distancing to engage in, or are there good reasons why governments should infringe upon civil liberties and order citizens to stay at home? In our latest paper, we show that infectious diseases such as COVID-19 lead to significant externalities, i.e. adverse effects that individuals do not internalize when they engage in their personal cost-benefit analysis. Moreover, if society internalizes these effects by imposing appropriate public health measures, it becomes optimal to pursue a policy of containment rather than letting the disease spread until herd immunity is acquired.
Our work is the first to put numbers on the infection externalities involved: We develop an epidemiological model that captures the main features of COVID-19 in the US economy. We show that individuals perceive the cost an additional infection to be only about a quarter of the true social cost of. An infected individual who does not follow self-isolation guidelines imposes an externality between $46k to $80k per week on the rest of society. This misvaluation has stark implications for how society ultimately overcomes the disease: in the absence of public health interventions, individuals act cautiously to “flatten the curve” of infections, but the disease is not overcome until herd immunity is acquired, with a sharp recession and a slow recovery that takes several years because individuals must continue to act with caution. By contrast, the optimal public health intervention will contain the disease by targeting the infected, producing a short-lived and much milder recession. Even if the infected and susceptible cannot be targeted independently because of shortages in testing and tracing, it is still desirable to pursue containment through general lockdowns, although the economic cost in that case is much greater.
Non-technical summary on VoxEU
Anton Korinek is a Professor at the University of Virginia, Department of Economics and Darden School of Business as well as a Research Associate at the NBER, a Research Fellow at the CEPR and a Research Affiliate at the Oxford Future of Humanity Institute Centre for the Governance of AI. He received his PhD from Columbia University in 2007 after several years of work experience in the IT and financial sectors. He has also worked at Johns Hopkins and at the University of Maryland and has been a visiting scholar at Harvard University, the World Bank, the IMF, the BIS and numerous central banks.
His areas of expertise include macroeconomics, international finance, inequality, with special focus on externalities. His most recent research investigates the effects of progress in automation and artificial intelligence for macroeconomic dynamics and inequality. Korinek also focuses on capital controls and macroprudential regulation as policy instruments to reduce the risk of financial crises. He investigates the global spillover effects of such policy measures as well as their implications for income inequality. He has won several fellowships and awards for this work, including from the Institute for New Economic Thinking.
