The Economical Control of Infectious Diseases

Abstract

The structure of representative agents and decentralisation of the social planner's problem provide a framework for the economics of infection and associated externalities. Optimal implementation of prevention and therapy depends on: (1) biology including whether infection is person to person or by vectors; (2) whether the infected progress to recovery and susceptibility, immunity, or death; (3) costs of interventions; (4) whether interventions target everyone, the uninfected, the infected, or contacts between the two; (5) individual behaviour leading to two types of externalities. By way of example, if people recover to be susceptible, government subsidies should equally favour prevention and therapy. The economic approach to infectious diseases is in its infancy, somewhat oddly because many economists have long had the intuition that epidemics and infectious diseases are quintessential manifestations of the principle of an externality, itself a central concept in economics (Gersovitz and Hammer, forthcoming a). Furthermore, epidemiology provides ready-made dynamic models of disease transmission and economics provides methods of valuing the costs and benefits of health interventions and methods of dynamic optimisation to guide policy. Policy toward infections is of great importance. Yet only recently have economists begun to look at these questions in a formal way. This paper has two main goals. The overarching goal is to dissect two important externalities involving infectious diseases when there are the options of both prevention and therapy, so that the relative phasing of these two types of interventions is important. To achieve this goal, we need to state the social planner's or first-best problem and to compare it to a representative agent's problem. To avoid compounding the identification of any externalities with problems of myopia, imperfect ability to insure health outcomes, or a disregard for the welfare of future generations, we make assumptions about the behaviour of the representative agent such that these problems do not arise, allowing us to focus exclusively on the externalities that we identify. These assumptions may not always be adequate approximations and a relaxation of these assumptions would lead to further considerations in the design of interventions but we do not deal with these issues in this paper. The economic literature on infectious diseases has taken as its starting point some special although important concerns. This starting point has influenced modelling strategies in ways that we believe obscures the general structure of private choice and consequent externalities in the process of disease transmission.