Public and private incentives for self-protection
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Public and private incentives for self‑protection François Salanié1 · Nicolas Treich1 Received: 19 April 2020 / Accepted: 7 July 2020 / Published online: 21 July 2020 © International Association for the Study of Insurance Economics 2020
Abstract Governments sometimes encourage or impose individual self-protection measures, such as wearing a protective mask in public during an epidemic. However, by reducing the risk of being infected by others, more self-protection may lead each individual to go outside the house more often. In the absence of lockdown, this creates a “collective offsetting effect”, since more people outside means that the risk of infection is increased for all. However, wearing masks also creates a positive externality on others, by reducing the risk of infecting them. We show how to integrate these different effects in a simple model, and we discuss when self-protection efforts should be encouraged (or deterred) by a social planner.
1 Introduction This note considers an economy where citizens enjoy going outside the house, though this increases the risk of catching, and spreading, a disease. In this economy, we examine the impact on welfare of a compulsory self-protection regulatory measure, such as wearing a mask in public. While several countries have adopted such policies in the hope of limiting infection rates for the COVID-19, this note calls for a detailed analysis of these policies. One may first wonder why governments interfere in self-protection decisions that are normally left to individual sovereignty. Therefore, the first issue to be clarified is the dual role of a mask: it protects the wearer from being infected by others, but it may also protect others from being infected by the wearer. The latter is a positive externality that justifies a public intervention. A second step is to take into account that agents adapt their behavior to the regulatory measure. Indeed, since wearing a protective mask decreases the risk that an individual catches the disease, it may in turn incite this individual to go * Nicolas Treich [email protected] François Salanié [email protected] 1
Toulouse School of Economics, INRAE, Université Toulouse Capitole, Toulouse, France Vol:.(1234567890)
The Geneva Risk and Insurance Review (2020) 45:104–113
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more often outside, or more generally to increase his exposure to risk. This offsetting effect refers to the well-known Peltzman (1975)’s article about car seatbelts. This effect by itself cannot reduce the individual’s welfare since the risk exposure (e.g., the time spent outside the house or the driving speed of the car) is optimally chosen by the individual. Things become even more complex when taking into account the collective nature of an epidemic. Indeed, the probability that an agent becomes infected depends not only on the time he spends outside, but also on how much time other agents spend outside. This generates a “collective offsetting effect”: since everybody has an extra incentive to go outside when wearing a mask, it becomes
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