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Lockdowns as options

Author

Listed:
  • S.J.G. van Wijnbergen

    (University of Amsterdam)

Abstract
I show that the irreversibility of dying coupled with gradual information acquisition over time on the likely arrival and eventual effectiveness of vaccines confers a real option value to lockdown strategies that delay the incidence of a pandemic.The case for lockdown strategies becomes stronger the more likely vaccine discovery is, and the less uncertainty exists about its effectiveness.

Suggested Citation

  • S.J.G. van Wijnbergen, 2021. "Lockdowns as options," Tinbergen Institute Discussion Papers 21-037/IV, Tinbergen Institute.
    • Handle: RePEc:tin:wpaper:20210037
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    References listed on IDEAS

    as
    1. Andrew Atkeson, 2021. "A Parsimonious Behavioral SEIR Model of the 2020 COVID Epidemic in the United States and the United Kingdom," Staff Report 619, Federal Reserve Bank of Minneapolis.
    2. Garriga, Carlos & Manuelli, Rody & Sanghi, Siddhartha, 2022. "Optimal management of an epidemic: Lockdown, vaccine and value of life," Journal of Economic Dynamics and Control, Elsevier, vol. 140(C).
    3. Collard, Fabrice & Hellwig, Christian & Assenza, Tiziana & Kankanamge, Sumudu & Dupaigne, Martial & Werquin, Nicolas & Feve, Patrick, 2020. "The Hammer and the Dance: Equilibrium and Optimal Policy during a Pandemic Crisis," CEPR Discussion Papers 14731, C.E.P.R. Discussion Papers.
    4. Greg Kaplan & Benjamin Moll & Giovanni L. Violante, 2020. "The Great Lockdown and the Big Stimulus: Tracing the Pandemic Possibility Frontier for the U.S," NBER Working Papers 27794, National Bureau of Economic Research, Inc.
    5. Thomas J. Kniesner & W. Kip Viscusi & Christopher Woock & James P. Ziliak, 2012. "The Value of a Statistical Life: Evidence from Panel Data," The Review of Economics and Statistics, MIT Press, vol. 94(1), pages 74-87, February.
    6. Goolsbee, Austan & Syverson, Chad, 2021. "Fear, lockdown, and diversion: Comparing drivers of pandemic economic decline 2020," Journal of Public Economics, Elsevier, vol. 193(C).
    7. Park, Hojeong, 2016. "A real option analysis for stochastic disease control and vaccine stockpile policy: An application to H1N1 in Korea," Economic Modelling, Elsevier, vol. 53(C), pages 187-194.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Pandemic Dynamics; Stochastic Vaccine arrival; information acquisition; irreversibility; lockdowns; real options;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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