Recurrent Infection and Externalities in Prevention

35 Pages Posted: 29 Nov 2010

See all articles by Flavio Toxvaerd

Flavio Toxvaerd

University of Cambridge - Faculty of Economics

Date Written: November 2010

Abstract

This paper studies a model of disease propagation in which agents can control their exposure to infection by engaging in costly preventive behavior. Agents are assumed to be fully rational, strategically sophisticated and forward-looking. I show that on the transition path, optimal behavior is Markovian, stationary and myopic and there are no contemporaneous externalities. In steady state, in which infection is endemic, there are strategic substitutes. Individuals over-expose themselves to infection, leading to sub-optimally high steady state disease prevalence. Infectivity-reducing measures such as pre-exposure prophylaxis lead to strictly worse steady state levels of disease prevalence. While revealed preferences show that the first-best level of welfare must increase, rational disinhibition, which makes increased exposure to infection a rational response to such measures, may lead to decreased welfare under decentralization.

Keywords: Economic epidemiology, Preventive behavior, Rational disinhibition, Risk compensation

JEL Classification: C73, I18

Suggested Citation

Toxvaerd, Flavio, Recurrent Infection and Externalities in Prevention (November 2010). CEPR Discussion Paper No. DP8112, Available at SSRN: https://ssrn.com/abstract=1714884

Flavio Toxvaerd (Contact Author)

University of Cambridge - Faculty of Economics ( email )

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