An economic model of the Covid-19 pandemic with young and old agents: Behavior, testing and policies

Macroeconomics/Economic Theory Joint Seminar

Philipp Kircher (European University Institute)

June 1, 2021, 14:00–15:30


Economic Theory Seminar


This paper investigates the importance of the age composition in the Covid-19 pandemic. We augment a standard SIR epidemiological model with individual choices on work and non-work social distancing. Infected individuals are initially uncertain unless they are tested. We find that older individuals socially distance themselves substantially in equilibrium. An optimal lockdown then confines the young more. The strictness and economic costs of the optimal lockdown depend on whether or not individuals can telework. Testing and quarantines save lives, even if conducted just on the young. When some testing is available, the optimal lockdown is much lighter and GDP rises even compared with a no-policy benchmark.