Economics of PandemicsAbhinay Muthoo

University of WarwickFirst version: 9th April 2020; This version 6th July 2020

Slide #1: The Problem, The Science and The Main Issues

The novel Coronavirus and Covid-19

The Current Facts

1. Deaths • Across communities, regions and countries, many people died (and

are dying), typically rapidly once they catch the virus.

• Many get sick but thankfully recover. Majority recover after mild symptoms.

• There are still others who are asymptomatic – i.e., have the virus but show no symptoms.

• It’s a new strain - little idea, at the moment, of how deadly the disease is; hence scary.

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The novel Coronavirus and Covid-19

The Current Facts, contd/-

2. Lockdowns/Social Distancing.

• (Costs) Adverse impact on so much including: jobs, livelihoods, businesses, schools and colleges, peoples’ other illnesses and treatments (e.g., for cancer), mental health, domestic violence, child abuse, suicides, etcetra. What are the other main “costs”?

• (Benefits) Positive impact in some respects such as: time to take stock, slow down, be creative [Newton did his best work during the 1665 plague], etcetra. What are the other main “benefits”?

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Lives versus Livelihoods?or

Is the cure worse than the disease?

• Never just black or white: Trade-offs which depend on…

1. Duration of lockdowns, and of other social distancing measures, and on

2. Death tolls.

• Government interventions (to cushion and support livelihoods and to support health care systems)

• Science (to find solutions to the virus and disease)7/7/2020 4Abhinay Muthoo, University of Warwick

Science: The Basic Problem

• Transmissible (or Communicable) disease: An infectious disease transmissible (as from person to person) by direct contact with an affected individual or the individual's discharges or by indirect means (as by a “vector” such a mosquito) .

• Examples: the new coronavirus (2019- nCov), smallpox, plague, malaria, influenza, tuberculosis, cholera, HIV/AIDS, Eloba, and Dengue.

Contrast with:

• Non-Transmissible Diseases: Diseases that cannot be spread from one person to another. Instead, these diseases are caused by other factors, such as genetics, environment, and lifestyle behaviours.

• Examples: Heart attacks, stroke, cancer, asthma, diabetes, obesity.

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Science and Public Health Problem

• Infectious diseases are caused by pathogenic microorganisms, such as bacteria, viruses, parasites or fungi; the diseases can be spread, directly or indirectly, from one person to another. Zoonotic diseases are infectious diseases of animals that can cause disease when transmitted to humans.

Public Health Problem:

• Epidemic - a widespread occurrence of an infectious disease in a community

at a particular time.

• Pandemic – an epidemic of an infectious disease that has spread across a large

region, for instance multiple continents, or worldwide.

But, the urgent question is: Just how fast can it spread?

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Public Health Nightmare: An Example of Exponential Growth

• The Rice and the Chess Board Story

• The Scariness of Exponential Growth captured in this example (of “doubling”) -Initially, small numbers, namely, 1, 2, 4, 8, 16 32, 64, 128, 256,…..and then, suddenly, “without warning”, growth takes off uncontrollably reaching pretty quickly some staggering numbers:

• On the 15th square of the chess board, number of grains of rice is 214 = 16,384; then on the 32nd square it is 231 = 4,294,967,296…..and on the final, 64th square it is 263 = 18,446,744,073,709,551,616, which is enough to cover the whole of India with a thick layer of rice!

• Formally, number of grains of rice on the nth square (where n=1,2,3,…,63,64) is:

2(n-1)

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Public Health Problem: Graphical Illustration of What Exponential Growth can look like – initially slow, then, suddenly fast: Between Jan 22 and March 2nd, 9000 cases; then, one week later, it’s 39000!

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Exponential Growth In General

• Let Xt+1 be the number of cases at time t+1, and Xt be the number of cases at time t.

• The variable X grows exponentially, at rate λ > 0, if:

Xt+1 = λXt, for t=1,2,3,4,….

where X1 is number of cases at time 1 (at the start).

Solving, this means: Xt = λt-1X1, for t=1,2,3….

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Public Health Approach: Flatten The Curve

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Public Health InterventionsSome First Main, Urgent Issue and Question:

How to flatten the curve (and to below the health care capacity)?

1. Social Distancing measures – to help reduce the transmission rate, and in turn, reduces the growth rate of the number of cases, and in turn reduces demand for health care at any one point in time, and

2. Invest in additional hospital capacity – and increase supply of health care

NB: The areas under the two curves can be the same - that is, the total number of cases over time is not necessarily changed. The objective is to reduce number of cases at any one point to below hospital capacity - hence be able to treat everyone and in turn minimise death numbers.

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The Reproductive Number R0

R0 is the expected (average) number of people that an individual who has the virus can infect.

The growth rate in number of cases, λ, will depend on R0

If R0>1, then λ>0 (exponential growth)

If R0<1, then λ<0 (exponential decay)

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Human Reactions and Behaviour

Uncertainty at the core.

Survival mode such as Flight or Fight or Freeze

Panic behaviour

less cooperation, potential riots, more crime

More cooperation; “we all in this together”

Human cognitive biases; nudges

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Exit strategy

Testing and tracking

Achieving Herd Immunity – via vaccine and/or majority of a population catching the virus.

Government Support such as via fiscal and monetary Reponses

Costs of lockdowns

The poor, the elderly, the vulnerable

International Cooperation and Coordination7/7/2020 14Abhinay Muthoo, University of Warwick