New version: “An economic model of the Covid-19 pandemic with young and old agents: Behavior, testing and policies”

joint with L.Brotherhood, C. Santos and M. Tertilt (new version: April 2021, first version May 2020)

This paper explores policies in epidemiological model of Covid-19 where individual’s make private social distancing decisions. Individuals differ by age, where the young have lower risk but need to earn a living (though they can telework). In equilibrium the elderly protect themselves much more than the young. An optimal social planner would immediately start a relatively strict lockdown that essentially aims for a no-Covid strategy. Optimal lockdown restricts the young more than the elderly, who get much more slack in the optimal allocation than in the no-policy equilibrium. Testing is very beneficial, and optimal lockdown in the presence of testing needs to be substantially less severe, though still restricts the young more.