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A theory of dynamics and inequalities under epidemics

Author

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  • BOUCEKKINE, Raouf

    (Université catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE))

  • LAFFARGUE, Jean-Pierre
Abstract
We develop a tractable general theory for the study of the economic and demographic impact of epidemics. In particular, we analytically characterise the short and medium term consequences of epidemics for population size, age pyramid, economic performance and income distribution. To this end, we develop a three-period overlapping generations where altruistic parents choose optimal health expenditures for their children and themselves. The survival probability of (junior) adults and children depend on such investments. Agents can be skilled or unskilled. The model emphasizes the role of orphans. Ophans are not only penalized in front of death , they are also penalized in the access to education. Epidemics are modeled as one period exogenous shocks to the survival rates. We identify three kinds of epidemics depending on how the epidemic shock alters the marginal efficiency of health expenditures. We first study the demographic dynamics, and prove that while a one-period epidemic shock has no permanent effect on income distribution, it can perfectly alter it in the short and medium run. We then study the impact of the three kinds of epidemics when they hit children and/or junior adults. We prove that while the three epidemics have significantly different demographic implications in the medium run, they all imply a worsening in the short and medium run of economic performance and income distribution. In particular, the distributional implications of the model mainly rely on orphans: if orphans are more penalized in the access to a high llevel of education than in front of death, they will necessarily lead to the medium-term increase in the proportion of the unskilled, triggering the impoverishment of the economy at that time horizon.

Suggested Citation

  • BOUCEKKINE, Raouf & LAFFARGUE, Jean-Pierre, 2007. "A theory of dynamics and inequalities under epidemics," LIDAM Discussion Papers CORE 2007037, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvco:2007037
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    References listed on IDEAS

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    Cited by:

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    2. Raouf Boucekkine & Rodolphe Desbordes & Hélène Latzer, 2009. "How do epidemics induce behavioral changes?," Journal of Economic Growth, Springer, vol. 14(3), pages 233-264, September.
    3. Takeo Hori, 2009. "Inequality and growth: the roles of life expectancy and relative consumption," Journal of Economics, Springer, vol. 96(1), pages 19-40, January.
    4. Eric Nævdal, 2012. "Fighting Transient Epidemics—Optimal Vaccination Schedules Before And After An Outbreak," Health Economics, John Wiley & Sons, Ltd., vol. 21(12), pages 1456-1476, December.
    5. Azomahou, Theophile & Diene, Bity & Soete, Luc, 2009. "The role of consumption and the financing of health investment under epidemic shocks," MERIT Working Papers 2009-006, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).

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    More about this item

    Keywords

    epidemics; orphans; income distribution; endogenous survival; medium-term dynamics;
    All these keywords.

    JEL classification:

    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • D9 - Microeconomics - - Micro-Based Behavioral Economics
    • I1 - Health, Education, and Welfare - - Health
    • I2 - Health, Education, and Welfare - - Education

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