The Macroeconomics of Epidemics

Abstract We extend the canonical epidemiology model to study interaction between economic decisions and epidemics. Our implies that people cut back on consumption work reduce chances of being infected. These severity epidemic but exacerbate size associated recession. The competitive equilibrium is not socially optimal because infected do fully internalize effect their spread virus. In our benchmark model, best simple containment policy increases recession saves roughly half a million lives in United States.