A Dynamic Structural Model of Virus Diffusion and Network Production: A First Report

49 Pages Posted: 20 May 2020

See all articles by Victor Aguirregabiria

Victor Aguirregabiria

University of Toronto - Department of Economics

Jiaying Gu

University of Toronto

Yao Luo

University of Toronto - Department of Economics

Pedro Mira

Centro de Estudios Monetarios y Financieros (CEMFI)

Date Written: May 2020

Abstract

This paper presents a dynamic structural model to evaluate economic and public health effects of the diffusion of COVID-19, as well as the impact of factual and counterfactual public policies. Our framework combines a SIR epidemiological model of virus diffusion with a structural game of network production and social interactions. The economy comprises three types of geographic locations: homes, workplaces, and consumption places. Each individual has her own set of locations where she develops her life. The combination of these sets for all the individuals determines the economy's production and social network. Every day, individuals choose to work and consume either outside (with physical interaction with other people) or remotely (from home, without physical interactions). Working (and consuming) outside is more productive and generates stronger complementarities (positive externality). However, in the presence of a virus, working outside facilitates infection and the diffusion of the virus (negative externality). Individuals are forward-looking. We characterize an equilibrium of the dynamic network game and present an algorithm for its computation. We describe the estimation of the parameters of the model combining several sources of data on COVID-19 in Ontario, Canada: daily epidemiological data; hourly electricity consumption data; and daily cell phone data on individuals' mobility. We use the model to evaluate the health and economic impact of several counterfactual public policies: subsidies for working at home; testing policies; herd immunity; and changes in the network structure. These policies generate substantial differences in the propagation of the virus and its economic impact.

Keywords: COVID-19, Disease-Specific Public Health Interventions, dynamics, Production and social networks, Production externalities, Virus diffusion

JEL Classification: C57, C73, I18, L14, L23

Suggested Citation

Aguirregabiria, Victor and Gu, Jiaying and Luo, Yao and Mira, Pedro, A Dynamic Structural Model of Virus Diffusion and Network Production: A First Report (May 2020). CEPR Discussion Paper No. DP14750, Available at SSRN: https://ssrn.com/abstract=3603982

Victor Aguirregabiria (Contact Author)

University of Toronto - Department of Economics ( email )

150 St. George Street
Toronto, Ontario M5S 3G7
Canada
4169784358 (Phone)

HOME PAGE: http://individual.utoronto.ca/vaguirre/

Jiaying Gu

University of Toronto

Yao Luo

University of Toronto - Department of Economics ( email )

150 St. George Street
Toronto, Ontario M5S3G7
Canada

Pedro Mira

Centro de Estudios Monetarios y Financieros (CEMFI) ( email )

Casado del Alisal 5
28014 Madrid
Spain
34 91 429 0551 (Phone)
34 91 429 1056 (Fax)

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