The government exists to protect American citizens from threats to their lives, liberties, and property by supplying public goods that would not be supplied through the market or other voluntary means. In the sphere of immigration policy, this means preventing the travel of foreign-born terrorists, individuals who pose a national security threat, and criminals to the United States. Another category of people who should be barred is those with serious contagious diseases, as I’ve written before. The transmissions of the SARS-CoV-2/COVID-19 virus, which causes the Coronavirus Disease 2019 (COVID-19), makes this a pressing issue again.
In response to COVID-19, President Trump created minor travel restrictions and redirected flights, some Senators are calling to ban travel with China, and rumors of additional government actions all mean that we should consider less-costly alternatives to combat the transmission of the virus. Travel-and-immigration-bans are costly, what other options does the government have?
There is growing evidence that COVID-19’s case fatality rate (CFR) is substantially higher than the normal flu with deaths concentrated on the elderly and those with comorbidities. It’s important to note that the CFR is a fatality rate for those who contract COVID-19, not a fatality rate for the entire population. That’s not much of a relief as the fatality rate is high, but it does help us get a better picture of COVID-19’s threat to particular groups. For instance, COVID-19’s CFR is 2.3 percent according to recent evidence from Mainland China. The CFR for those aged 39 and younger is 0.21 percent, but it is 5.96 percent for those aged 60 and above. Protecting the elderly should thus be of prime concern as younger people, especially children, don’t appear to be much affected.
There are several different ways for policymakers to respond to COVID-19. A travel-and-immigration ban is an appropriate policy response if two conditions are met. First, the benefits of a travel-and-immigration-ban are greater than the costs of a travel ban. Second, there are no other less-costly options. This analysis will compare the breakeven point to show how many lives a travel-and-immigration-ban would have to save to make sense. It will then further compare the cost of those less-costly policies that will have big positive impacts.
Finding the breakeven point at which the benefits of reduced deaths from COVID-19 equal the costs incurred by a U.S. ban on travel and immigration helps form the outermost boundaries of a possible policy response. COVID-19 is spreading from China to other countries, with outbreaks reported in Italy, Iran, Korea, Taiwan, and elsewhere. Currently, there are more new cases of COVID-19 reported outside of China than inside, so it’s conceivable that policymakers will react in this extreme way.
Travel-and-immigration-bans are expensive. The World Travel and Tourism Council estimated that tourism contributed about $1.595 trillion to U.S. GDP in 2018 and 18.8 percent, or about $299.86 billion, was from international travel. Also, blocking the roughly 500,000 immigrants who receive a green card abroad each year and those who enter on temporary work visas would also diminish their contributions to GDP. Looking at average salaries of immigrants as a decent proxy of their contribution to GDP, combined with the tourist spending, a travel-and-immigration-ban would impose a cost of $323 billion to the U.S. economy in the first year.
The statistical value of a life in the United States, which is the average dollar value that individuals place on their own lives based on the risk-money trade-offs that they make, is about $10 million. Dividing the $323 billion cost of a travel and immigration ban for the first year by the $10 million statistical value of life reveals how many lives would have to be saved in the first year of such a ban so that the purely economic costs equal the benefits. Thus, a moratorium on travel and immigration would have to prevent 32,302 deaths to breakeven. This doesn’t include the cost of people being sick, which is most of COVID-19 cases, and the cost imposed on people outside of the United States as well as the long-term costs to the U.S. economy such as lower growth and broken global supply chains.
Deaths and sickness aren’t the only costs imposed by COVID-19. Most of the negative impact would be due to people’s reactions and avoidance behaviors, according to a World Bank background paper on pandemics. As the author of that paper explained, “those costs created by behavioral changes to avoid infection would be aggravated by likely confusion triggered by incomplete or inaccurate information and other inadequacies in individual subjective risk assessments.” Healthy people changing their behavior to avoid becoming sick imposes another huge cost, similar to the cost that taxes impose by changing individual behavior. It’s important that healthy people adjust their behavior enough to reduce the cost of COVID-19, but not so much that the extra cost imposed by their changing behavior outweighs the potential damage done by the virus.
There are, of course, other considerations and values, but those above are a starting point. Most of the above assumes a relatively short pandemic. If it extends for longer then the net-present value of different long-term policy changes must also be weighed against the costs of business as normal. If many deaths, illnesses, and other costly behavior from COVID-19 can be prevented or mitigated by means other than a travel or immigration ban, then we should take those instead of the expensive options – at least at first. What are some of those options?
Less-Costly Actions to Limit the Spread of COVID-19
The spread of COVID-19 is a great example of an externality, which is an economic term for a cost or benefit incurred or received by a third party. The best example of a negative externality is air pollution, such as when a factory emits air pollution that imposes a cost on neighbors. The best example of a positive externality is herd immunity that is created by a vaccine.
Externalities lead to inefficient economic outcomes. In the case of negative externalities, costs imposed on third parties are not borne by the economic actors that produce the cost, meaning that they will overproduce whatever good or service creates that cost. In the case of positive externalities, benefits produced for third parties will not accrue to the people producing the benefits, so they will underproduce whatever it is that leads to those benefits.
Travel-and-immigration-bans aren’t the only policy options available to the government. There are many less-costly and less intrusive marginal measures that the government can take to reduce the spread of COVID-19 that it should consider before attempting the more expensive actions. Economists have proposed numerous ways to correct for the overproduction of goods and services with negative externalities and the underproduction of goods and services with positive externalities. They and some other economic concepts can help us understand different ways to reduce the danger from COVID-19 while being mindful of trade-offs and selecting the best options.
Pigovian Taxes and Subsidies
A Pigovian tax is a tax on any market activity that produces a negative externality when the cost of that negative externality is not included in the market price. The Pigovian tax is supposed to raise the private marginal cost of production to the marginal social cost of production, which reduces the production of the negative externality-creating good or service and internalizes the cost of the externality through higher prices for consumers and reduced profit for producers. One difficulty is figuring out the optimal tax rate for a negative externality.
Pigovian taxes on activities that spread COVID-19, such as traveling to countries with high infection rates, taking airplane trips in general, working while sick, or failing to maintain hand hygiene, would help to reduce COVID-19’s spread. It would be easy for the government to tax travel as there are already high taxes on airplane tickets, but difficult to maintain hand hygiene. A tax for being sick in public might reduce private disease-mitigation behavior like wearing a mask or encouraging other behavior to hide illness, which could be worse than doing nothing. It’s also hard to see how levying a tax for failing to maintain hand hygiene could function. Perhaps, the tax revenue raised from a Pigovian tax on travel could be used to create a Pigovian subsidy for increased hand sanitation in airports or other places with a lot of foot traffic.
A recent paper found that mandated sick pay in American cities reduced the rate at which people contracted the flu by as much as 40 percent during the flu season, presumably because many more sick people actually face a lower cost of staying home and so choose to do so. Forcing mandatory sick pay is an expensive policy however, partly because it increases shirking and the cost of hiring workers. But fining employees who show up with the flu or ticketing a business that lets somebody work while they are sick with the flu would be a strong temporary negative incentive.
Pigovian subsidies and taxes could also increase social distancing, a strategy used by public health officials to reduce large public gatherings of people to inhibit the spread of disease. The government could immediately reduce taxes on firms that let their employees work remotely, creating an incentive that will increase work outside of the office. They could raise the prices for mass transportation. Without a subsidy, public schools could allow distance learning and for students to study from home through the internet. For instance, schools in Japan are shutting down on March 2. The government could immediately let workers telework every day.
The Coase Theorem is a different way of reducing negative externalities. The theorem states that, under certain circumstances, bargains and exchanges can reduce negative externalities by efficiently exchanging property rights between the creator of a negative externality and the third party incurring the cost. In other words, both parties can change their behaviors or exchange resources to decrease the damage of an externality or compensate those harmed. Since both parties have a better understanding of their own costs, they are much more likely to reach a mutually beneficial bargain than having one imposed on them by a Pigovian tax.
There are two conditions critical to striking a Coasean bargain. The first is that transaction costs need to be low enough to allocate all property rights in a way to adjust negative externalities down to an efficient level. When transaction costs are positive –as they always are in the real world –the cost of finding the polluter and victim, negotiating, and enforcing a solution need to be less than or equal to the benefits of the bargain. If those transaction costs are too great, the Coasean bargain will not occur.
Property rights are also important for these bargains. One of the main insights here is that if property rights are secure and transferrable and transaction costs are low, people will exchange property and make Coasean bargains to decrease the cost of negative externalities to the point where the benefits equal the costs. The negative externality will not disappear, it will decrease or change to the point where the last bit of the negative externality produced will be equal to the economic value of the last good produced.
There are fewer lessons from the Coase theorem for reducing the spread of disease, but perhaps I’m just not creative enough to think of them. In the example of COVID-19, changing the behavior of those with COVID-19 or the behavior of healthy people will reduce the negative externality. The action that should be taken is that which reduces the externality at the cheapest cost down to the point where the marginal cost of the last measure to reduce spread is equal to the marginal benefit of less disease.
The government could assign property rights and liabilities to different parties to make them responsible for the spread of COVID-19, such as making airlines liable for an outbreak that occurs as a result of the transportation of sick passengers, but that will be difficult to prove and hard to ex ante protect against. Sometimes, people travel when they are infected but before they have symptoms. Furthermore, even with such a reassignment of property rights, the transaction costs would be high. It seems unlikely that, without new and secure property rights and lower transaction costs, that we can rely on the Coase theorem to produce a better outcome.
Reduce Imperfect Information
One of the problems in a pandemic is that some people who are sick do not know that they have fallen ill yet. As a result, they transmit the illness without being aware that they are exposing other people to the sickness. Economist Vincent Geloso summarizes a paper by Alice Mesnard and Paul Seabright in the Journal of Public Economics about the problems that arise in this scenario. It’s difficult to know who is sick and who is not, so quarantines end up locking many sick people in with many healthy people. Healthy people and those who think they are healthy to understand accurately that they would reduce their chance of becoming ill if they emigrate. By doing that, some people transmit the disease. Under some scenarios, the stricter the quarantine, the more people invest in emigrating. Sometimes, this behavioral response results in wider transmission of the disease.
Related to informational problems, many people might voluntarily take actions to reduce the transmission of COVID-19 because they themselves don’t want to get sick. Although COVID-19 is an externality in that people spread it unintentionally, it also frequently imposes very heavy costs on those who get ill. Thus, reducing ignorance would improve behavior and reduce the spread of COVID-19 on its own.
For instance, making higher risk people aware of the danger and of cheap ways to reduce their likelihood of contracting the illness would reduce its spread. People voluntarily engage in self-protective behavior when confronted with a pandemic. According to a paper published in 2013, many travelers changed their travel itinerary when they became aware of swine flu. It stands to reason, then, that making travelers aware of COVID-19 will increase their hand hygiene. After all, washing one’s hands more is a much less-costly way to avoid disease than canceling a flight.
Making hand sanitizer commonly and easily available will also help here. Putting hand sanitizer stations or handwashing stations in airports with big signs that let people know that keeping their hands clean will reduce the chance of getting sick and spreading the disease will boost hand hygiene at a low cost. Another way to reduce asymmetric information is through travel warnings to places with large-scale outbreaks. The State Department already releases these and should continue to do so.
Because COVID-19’s CFR is so much higher for the elderly than for the rest of the population, wide-spread dissemination of this information to retirement homes and along with monthly Social Security checks could help increase self-quarantines, where the elderly create cultural distance and thus reduce their chance of death. Since many elderly people are retired, the economic costs of this would be minor as they have generally lower opportunity cost, even though it would be boring and alienating for a lot of people in the short term.
However, it’s also important that people don’t overreact and take extremely costly precautions to avoid becoming sick. People should still go to work and should not run to the mountains and shoot all people they meet as if they’re living through The Walking Dead. The spread of information that can reduce overreactions is just as important as spreading information that helps people take reasonable precautions that pass a cost-benefit test.
As mentioned above, the cheapest and most effective way to combat the transmission of flu-type viruses is proper hand hygiene. Concentrating resources on increasing hand hygiene in airports, where diseases spread rapidly due to unsanitary conditions that can easily propagate around the world, can greatly reduce the spread of a global pandemic. A recent paper published in the journal Risk Analysis found that increasing traveler’s engagement with hand hygiene at all airports can inhibit the spread of a potential pandemic by 24 percent to 69 percent.
The authors use Monte Carlo simulations to test how increases in hand hygiene in airports affect the outcomes of epidemiological models of disease transmission. They start with the assumption of a steady state that 20 percent of people in airports at any given time have clean hands. Increasing the steady state to 30 percent across all airports reduces the impact of the disease by 23.7 percent while increasing it to 60 percent reduces it by 69.1 percent. They use a different measurement of disease impact and get estimates of an 18.2 percent to 55.4 percent decrease in impact if 30 percent and 60 percent of people in airports have clean hands, respectively. Regardless, the effect of increased hand hygiene is large.
The government could immediately increase hand hygiene at airports by having TSA agents squirt hand sanitizer into the palms of all passengers who go through security. This would do more good for the world than the TSA has likely ever done. At a bare minimum, the TSA could put hand sanitizers at the front and end of every security line. This week, my colleague Emma Ashford went through security at Ronald Reagan National Airport and noticed there was no hand sanitizer available to the public – it was all behind the rope and set aside for TSA agents. Moving hand sanitizer forward is a good first step. TSA could pay a little overtime to its agents and have them squirt the hands of passengers with hand sanitizer as they deplane or board too. The government could even ask airlines to do that and put hand sanitizers at each gate. Many bathrooms at large airports have attendants, they should remind everybody to wash their hands after using the bathroom.
A mix of the policy options above, from Pigovian taxes and subsidies to small changes in property rights as well as reducing ignorance and other regulatory changes at airports, could have a large effect in reducing the spread of COVID-19 at a very low cost. Extreme options like travel-and-immigration-bans might be appropriate if the expected cost of COVID-19 climbs beyond a certain point, but less-costly policies should be tried first. In other words, let’s have TSA agents squirt hand sanitizer into the hands of all travelers before closing the airports.