Optimal Covid-19 Quarantine and Testing Policies

48 Pages Posted: 8 May 2020 Last revised: 14 Jul 2021

See all articles by Facundo Piguillem

Facundo Piguillem

Einaudi Institute for Economics and Finance (EIEF)

Liyan Shi

Einaudi Institute for Economics and Finance

Date Written: April 2020

Abstract

During the COVID-19 pandemic, many countries have taken various measures, mostly "lockdowns," to contain and potentially eliminate the virus. In this paper, we study the optimality of such policies and whether lockdowns can be complemented or substituted with testing. To this end, we extend the epidemiological SEIR model, incorporating the information friction concerning virus carriers and testing technology. We find two main results, depending on whether testing is used. First, we show that two distinct types of optimal lockdown policies arise: suppression, consisting of closing down most of the economy for a period, and mitigation, consisting of shutting down a few activities for a relatively longer time span. Conditional on the policy type, the intensity and the duration are invariant to the properties of the welfare function: they depend only on the dynamics of the virus. Second, when incorporating testing, we find that testing is a very close substitute for lockdowns, substantially reducing the need for them to the point that they become unnecessary. By identifying carriers, testing contains the spread of the virus without the cost of lost output.

JEL Classification: E1, E65, H12, I1

Suggested Citation

Piguillem, Facundo and Shi, Liyan, Optimal Covid-19 Quarantine and Testing Policies (April 2020). CEPR Discussion Paper No. DP14613, Available at SSRN: https://ssrn.com/abstract=3594243

Facundo Piguillem (Contact Author)

Einaudi Institute for Economics and Finance (EIEF) ( email )

Via Sallustiana, 62
Rome, 00187
Italy

Liyan Shi

Einaudi Institute for Economics and Finance ( email )

Via Due Macelli, 73
Rome, 00187
Italy

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