Frisch seminar: Espen Moen

Since the outbreak of the covid-19 pandemic economists have turned to the SIR model and its subsequent variants for the study of the pandemic's economic impact. But the SIR model is lacking the optimizing behaviour of economic models, in which agents can influence future transitions with theirmpresent actions. We borrow ideas and modelling techniques from the Mortensen-Pissarides (1994) search and matching model and show that there is a well-defined solution in line with the original claims of Kermack and McKendrick (1927) but in which incentives play a role in determining the transitions. There are also externalities that justify government intervention. Our simulations indicate that if a vaccine is expected to arrive in the future, the government would like to impose more restrictions on actions outside the home than a decentralized equilibrium would yield. However, if the pandemic is expected to spread until herd immunity is obtained, the government would like to impose less restrictions than in the decentralized equilibrium.