Nancy Seminar – Chantal Marlats (Paris 2)

Abstract:  We analyze an epidemiological model where forward-looking individuals trade off the costs and benefits of self-isolation while being uncertain both about their type and about the dynamics of the epidemic. We characterize the unique interior symmetric equilibrium and identify the necessary conditions of the optimal solution. We calibrate our model to the COVID-19 pandemic and simulate the dynamics of the epidemic under various scenarios to illustrate the impact of uncertainty on self-isolation behaviors. We show that uncertainty may cause a second wave of infection and that the average level of social activity can decrease with the degree of uncertainty. Finally, uncertainty about the epidemic dynamics may be welfare improving, both in terms of fraction of deaths and average payoff.