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In an Epidemic, Individuals are not Plants

Summary:
An econometric study by Austan Goolsbee and Chad Syverson of the University of Chicago estimates that the lockdowns imposed by state and local governments may have been responsible for only 7% of the drop in economic activity. Most of the impact came from individuals who decided to avoid crowded places, as can be seen by comparing traffic in shops that were not under lockdown orders and those that were. This is consistent with a basic economic idea: individuals respond to incentives (here, the fear of being infected), even in the absence of coercion. People are not just plants. The authors used a database of cellphone data on foot traffic spanning contiguous counties subjected to different or differently-timed legal restrictions from March 1 to May 16. The data

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An econometric study by Austan Goolsbee and Chad Syverson of the University of Chicago estimates that the lockdowns imposed by state and local governments may have been responsible for only 7% of the drop in economic activity. Most of the impact came from individuals who decided to avoid crowded places, as can be seen by comparing traffic in shops that were not under lockdown orders and those that were.

This is consistent with a basic economic idea: individuals respond to incentives (here, the fear of being infected), even in the absence of coercion. People are not just plants.

The authors used a database of cellphone data on foot traffic spanning contiguous counties subjected to different or differently-timed legal restrictions from March 1 to May 16. The data comprise more than 2.25 million business locations. (Note that the study tracks only foot traffic for consumption purchase, not traffic for work purposes.)

The main results of this working paper:

The results indicate that legal shutdown orders account for a modest share of the massive overall changes in consumer behavior. Total foot traffic fell by more than 60 percentage points, but legal restrictions explain only around 7 percentage points of that. … The vast majority of the decline was due to consumers choosing of their own volition to avoid commercial activity.

The authors conclude:

The COVID-19 crisis led to an enormous reduction in economic activity. We estimate that the vast majority of this drop is due to individuals’ voluntary decisions to disengage from commerce rather than government-imposed restrictions on activity.

It is not clear how these conclusions fit into the current neglect of social distanciation rules and the resurgence of infections in many states where the lockdowns were ended, but they still suggest that an epidemic will, to a certain degree, be attenuated by the private means used by individuals to protect themselves.

In an older paper, Tomas Philippon, also of the University of Chicago, reached a similar conclusion (“Economic Epidemiology and Infectious Diseases,” in A.J. Culyer and J.P. Newhouse, Editors, Handbook of Health Economics, Vol. 1 [Elsevier Science B.V., 2000]):

Incentives for prevention make epidemics self-limiting, because the prevalence of a disease raises the incentives for preventive behavior. … The economic approach yields the insight that public intervention often provides less benefit than predicted by epidemiology, because private incentives counteract its effects.

We may add that, in the case of Covid-19, government intervention often generated perverse incentives. For example, public health agencies long claimed that wearing masks was useless for the general public. We may hypothesize that this detrimental advice was motivated by the shortage of masks (and other personal protective equipment) created by governments’ own price-controls and their efforts to commandeer the consequently insufficient quantity supplied. (On these shortages, I have written a number of posts starting with one on March 6, “Don’t Confuse Shortage and Smurfage.”)

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