An Epidemic Compartment Model for Economic Policy Directions for Managing Future Pandemic

Abstract: In this research, we develop a framework to analyze the interaction between the economy and the Covid-19 pandemic using an extension of SIR epidemic model. At the outset, we assume there are two health related investments including general medical expenditures and the other for a direct investment for controlling the pandemic. We incorporate the learning dynamics associated with the management of the virus into our model. Given that the labor force in a society depends on the state of the epidemic, we allow birth, death, and vaccination to occur in our model and assume labor force consists of the susceptible, vaccinated, and recovered individuals. We also assume parameters in our epidemic compartmental model depend on investment amount for directly controlling the epidemic, the health stock of individual representative agents in the society, and the knowledge or learning about the epidemic in the community. By controlling consumption, the general medical expenditure, and the direct investment of funds for controlling the epidemic, we optimize the utility realized by the representative individuals because of consumption. This problem is nontrivial since the disease dynamics results in a non-convex optimization problem.