How to Return to Work Balancing Public Health and Economic Needs

Since the onset of the COVID-19 outbreak in Italy, Carlo Favero, Full Professor of Econometrics at Bocconi Department of Finance, has been working at an adaptation and calibration of the standard SEIR (susceptible, exposed, infectious, recovered) epidemiological model to the trend of the epidemic in Italy for the COVID Crisis Lab. He observed that mortality didn't match the predictions of the standard model, unless the scarcity of intensive care beds were introduced, thus making a compelling argument for "flattening the curve". In fact, easing the pressure on the health system was the only way to make the intensive care constraint not-binding and lower the mortality rate.

Six weeks into the lockdown, though, with COVID figures improving and the economy deteriorating, the urge to restart at least some activities was clear. Professor Favero teamed up with economists Andrea Ichino and Aldo Rustichini and extended his model by dividing the population into two production sectors characterized by different levels of coworker proximity and thus by different infection risks and into 9 age brackets (from 0-9 to 80+), characterized by fatality and hospitalization rates that increase with age.

Furthermore, they modeled individual mobility decisions as a behavioral response to the risk of infection, as understood from news about the spread of the infection. "The size of the effect of this adjustment is striking", Professor Favero says. "Its magnitude, particularly in the early days of the epidemics, is comparable to the effects of the administrative measures taken in Italy in the months of March and April, which were severe". The big question about the behavioral effect relates to its persistence over time. The strong response observed might in fact be related to the saliency of the virus, which is not going to persist over time.

Finally, the scholars calculated the GDP effect of a return to work of people in those age brackets and sectors. Their aim: to devise a staggered lockdown exit strategy capable of balancing public health and economic needs, keeping in mind that "each single death due to the current epidemic is a tragedy, but the social, mental, and even health implications of a prolonged inactivity are also tragic".

When calibrating their model for Lombardy and Veneto, Favero and his colleagues found that the only policy that causes the basic reproduction number R0 to exceed the threshold of 1 (thus reigniting the pandemic) is a complete return to normality, while a number of different age/sector combinations that promote economic recovery and limit human loss are possible.

Carlo Favero, Andrea Ichino, Aldo Rustichini, "Restarting the Economy While Saving Lives Under COVID-19", available at SSRN, DOI: 10.2139/ssrn.3580626.