Social Interactions in Pandemics: Fear, Altruism, and Reciprocity

Laura  Alfaro; Ester  Faia; Nora  Lamersdorf; Farzad  Saidi

Working Paper | 2020

Social Interactions in Pandemics: Fear, Altruism, and Reciprocity

by Laura Alfaro, Ester Faia, Nora Lamersdorf and Farzad Saidi

Abstract

In SIR models, homogeneous or with a network structure, infection rates are assumed to be exogenous. However, individuals adjust their behavior. Using daily data for 89 cities worldwide, we document that mobility falls in response to fear, as approximated by Google search terms. Combining these data with experimentally validated measures of social preferences at the regional level, we find that stringency measures matter less if individuals are more patient and altruistic preference traits, and exhibit less negative reciprocity community traits. We modify the homogeneous SIR and the SIR-network model to include agents' optimizing decisions on social interactions. Susceptible individuals internalize infection risk based on their patience, infected ones do so based on their altruism, and reciprocity matters for internalizing risk in SIR networks. A planner further restricts interactions due to a static and a dynamic inefficiency in the homogeneous SIR model, and due to an additional reciprocity inefficiency in the SIR-network model. We show that partial or targeted lockdown policies are efficient only when it is possible to identify infected individuals.

Language: English

Format: Print

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Citation:

Alfaro, Laura, Ester Faia, Nora Lamersdorf, and Farzad Saidi. "Social Interactions in Pandemics: Fear, Altruism, and Reciprocity." NBER Working Paper Series, No. 27134, May 2020.

Working Paper | HBS Working Paper Series | 2020

EMEs and COVID-19: Shutting Down in a World of Informal and Tiny Firms

Laura Alfaro, Oscar Becerra and Marcela Eslava

Emerging economies are characterized by an extremely high prevalence of informality, small-firm employment and jobs not fit for working from home. These features factor into how the COVID-19 crisis has affected the economy. We develop a framework that, based on accounting identities and actual data, quantifies potential job and income losses during the crisis and recovery for economies with different economic organization structures. Our analysis incorporates differential exposure of jobs across categories of firm-size and formality status, as well as sectors and occupations. We account for the direct supply shock caused by lockdowns, the idiosyncratic demand shock suffered by sectors that rely on high contact with their costumers, the transmission of both shocks through IO linkages, and the overall aggregate demand effect derived from these shocks. Applying our framework to data for Colombia, which exhibits an employment distribution similar to that of other emerging market countries, in particular Latin America, we find that well over 50% of jobs are at risk in the initial stages of the crisis. Because informal jobs and those not fit for telework are at higher risk, this number goes down to 33% if the US employment distribution is imposed on the Colombian data. As the crisis deepens, the risk of unemployment grows. However, informality rebounds quickly in the recovery, an employment at risk is quickly reduced to 20% of the baseline, all concentrated in formal jobs. Our findings point to the importance of action to maintain formal matches from dissolving, given their scarcity and rebuilding difficulty, while protecting the poor and the informal via income transfers.

Keywords: COVID-19; emerging economies; informality; firm-size distribution; Health Pandemics; Developing Countries and Economies; Economy; System Shocks; Latin America;

Citation:

Alfaro, Laura, Oscar Becerra, and Marcela Eslava. "EMEs and COVID-19: Shutting Down in a World of Informal and Tiny Firms." Harvard Business School Working Paper, No. 20-125, June 2020. View Details

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In the first months of 2020, a pandemic overwhelmed the world. COVID-19, commonly known as the coronavirus, spread from China and created a severe public health emergency across countries. While an immediate fear of the disease’s impact on human life permeated society, the world battled another concern for the severe economic downturn that was brought about by attempts to suppress the virus. World trade, tourism, capital flows, remittances, and commodity prices collapsed. Prior to the coronavirus outbreak, the global GDP growth rate for 2020 was expected to be close to 2.3%. As of April 2020, multilateral organizations estimated that GDP would contract by 3%—way worse than the 0.1% contraction of 2009, and the deepest dive since the Great Depression. What policy options existed to mitigate the financial and economic distress of containment, and what factors did different countries weigh in deciding which paths to choose? Was there a terrible choice—either damage livelihoods through extended lockdowns, or sacrifice thousands or even millions of lives to the virus—or were policies reinforcing? What was the role of government, businesses, communities and individuals? After the worst of the health crisis was mitigated, what kind of shape would world economies take?

Research has sought to understand how foreign direct investment affects host economies. This paper reviews the empirical literature, specifically addressing the question: How does FDI affect economic development of host countries and what is the role of local financial markets in mediating the potential benefits? We first define FDI and discuss general theories on types and drivers of FDI. This review takes a host-country perspective rather than a firm perspective and thus only highlights the key insights from the rich firm-level literature on MNCs. We then focus on how financial conditions in host countries affect the extent of FDI-related capital inflows, shape the operations of foreign firms, and mediate the extent of productivity spillovers from FDI to local firms. The survey focuses mainly on work related to developing countries.

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Social Interactions in Pandemics: Fear, Altruism, and Reciprocity

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