Pandemic economics: optimal dynamic confinement under uncertainty and learning

Abstract

Most integrated models of the covid pandemic have been developed under the assumption that the policy-sensitive reproduction number is certain. The decision to exit from the lockdown has been made in most countries without knowing the reproduction number that would prevail after the deconfinement. In this paper, I explore the role of uncertainty and learning on the optimal dynamic lockdown policy. I limit the analysis to suppression strategies where the SIR dynamics can be approximated by an exponential infection decay. In the absence of uncertainty, the optimal confinement policy is to impose a constant rate of lockdown until the suppression of the virus in the population. I show that introducing uncertainty about the reproduction number of deconfined people reduces the optimal initial rate of confinement.