We examine how policymakers should react to a pandemic when there is significant uncertainty regarding key parameters relating to the disease. In particular, this paper explores how optimal mitigation policies change when incorporating uncertainty regarding the Case Fatality Rate (CFR) and the Basic Reproduction Rate (R0) into a macroeconomic SIR model in a robust control framework. This paper finds that optimal policy under parameter uncertainty generates an asymmetric optimal mitigation response across different scenarios: when the disease’s severity is initially underestimated the planner increases mitigation to nearly approximate the optimal response based on the true model, and when the disease’s severity is initially overestimated the planner maintains lower mitigation as if there is no uncertainty in order to limit excess economic costs.

More Research From These Scholars

BFI Working Paper Mar 31, 2020

How Does Household Spending Respond to an Epidemic? Consumption During the 2020 COVID-19 Pandemic

Scott R. Baker, R.A. Farrokhnia, Steffen Meyer, Michaela Pagel, Constantine Yannelis
Topics:  COVID-19
BFI Working Paper Jul 3, 2020

Did the Paycheck Protection Program Hit the Target?

Joao Granja, Christos Makridis, Constantine Yannelis, Eric Zwick
Topics:  COVID-19
BFI Working Paper Sep 15, 2020

Income, Liquidity, and the Consumption Response to the 2020 Economic Stimulus Payments

Scott R. Baker, R.A. Farrokhnia, Steffen Meyer, Michaela Pagel, Constantine Yannelis
Topics:  COVID-19