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An economic model of the Covid-19 pandemic with young and old agents: Behavior, testing and policies
C63 - Computational Techniques
D62 - Externalities
E17 - Forecasting and Simulation
I10 - General
I18 - Government Policy; Regulation; Public Health
This paper investigates the importance of the age composition in the Covid-19 pandemic. We augment a standard SIR epidemiological model with individual choices on work and non-work social distancing. Infected individuals are initially uncertain unless they are tested. We find that older individuals socially distance themselves substantially in equilibrium. Confining the old even more reduces their welfare. Confining the young extends the duration of the epidemic, with negative consequences on the old if the epidemic cannot be controlled after confinement. Testing and quarantines save lives, even if conducted just on the young, as does separation of activities by age. Combining policies can increase the welfare of both the young and the old.