Economic Eggheads: Target Lockdowns much better, put people back to work sooner

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We develop a multi-risk SIR model (MR-SIR) where infection, hospitalization and fatality rates vary between groups—in particular between the “young”, “the middle-aged” and the “old”. Our MR-SIR model enables a tractable quantitative analysis of optimal policy similar to those already developed in the context of the homogeneous-agent SIR models. For baseline parameter values for the COVID-19 pandemic applied to the US, we find that optimal policies differentially targeting risk/age groups significantly outperform optimal uniform policies and most of the gains can be realized by having stricter lockdown policies on the oldest group. For example, for the same economic cost (24.3% decline in GDP), optimal semi–targeted or fully-targeted policies reduce mortality from 1.83% to 0.71% (thus, saving 2.7 million lives) relative to optimal uniform policies. Intuitively, a strict and long lockdown for the most vulnerable group both reduces infections and enables less strict lockdowns for the lower-risk groups. We also study the impacts of social distancing, the matching technology, the expected arrival time of a vaccine, and testing with or without tracing on optimal policies. Overall, targeted policies that are combined with measures that reduce interactions between groups and increase testing and isolation of the infected can minimize both economic losses and deaths in our model....

Despite these aggressive lockdowns, total fatalities reach 1.83% of the population, and economic losses amount to 23.4% of one year’s GDP. In contrast, targeted policies can significantly improve both on public health and economic outcomes. Interestingly, we find that semi-targeted policies that simply apply a strict lockdown on the oldest group can achieve the majority of the gains from fully-targeted policies. For example, a semi-targeted policy that involves the lockdown of those above 65 until a vaccine arrives can release the young and middle-aged groups back into the economy much more quickly, and still achieve a much lower fatality rate in the population (just above 1% of the population instead of 1.83% with the optimal uniform policy). This policy also reduces the economic damage from 24.3% to 12.8% of one year’s GDP. The reason is that, once the most vulnerable group is protected, the other groups can be reincorporated into the economy more quickly.

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