NBER

Martin S. Eichenbaum, Sergio Rebelo, Mathias Trabandt

Bibliographic Information

NBER Working Paper No. 27104
Issued in May 2020, Revised in August 2020
NBER Program(s):EFG, HE

This paper was revised on August 19, 2020

Available Formats

Abstract

Much of the economics literature on epidemics assumes that people know their current health state. Under this assumption, there is no role for testing. To study the general equilibrium e┬žects of testing on economic outcomes, we develop a model of epidemics in which people who are not tested are uncertain about their health state. We find that, when combined with quarantines, testing dramatically reduces the economic costs of the epidemic. This reduction is particularly dramatic when people who recover from an infection acquire only temporary immunity to the virus.

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