Dealing with Covid-19: understanding the policy choices

Containment policies save lives but restrict economic activity. Standard approaches to accounting for the value of human lives lend support to these policies despite their high short-term economic costs. Integrated epidemic-macroeconomic models provide a coherent framework for quantifying the costs and benefits of containment policies. Part of the benefit comes from limiting externalities that would otherwise arise if social distancing were purely voluntary. Standard epidemiological and economic parameters suggest that several months of strict containment policies that lead to as much as a 30% decline in GDP for the period of the lockdown could be preferable to alternatives with more casualties and a less severe recession.