Strategies for Covid-19: The Option Value of Waiting

Luís Santos-Pinto; José  Mata

Strategies for Covid-19: The Option Value of Waiting

Luís Santos-Pinto, José Mata

HEC Lausanne

Research output: Other contribution › Net publication - Internet publication › Communication

Abstract

Increasing and recurring pleas to return to normality in order to avoid the economic costs of a lockdown rely on the idea that ‘natural’ herd immunity may be achieved by letting Covid-19 spread without measures to contain it. This column discusses key uncertainties associated with Covid-19 and argues that there are substantial benefits in keeping the lockdown in place in order to first learn more about Covid-19 and then decide on the best strategy. This logic is based on option theory which shows that when a strategy has irreversible consequences and there are important uncertainties, there is substantial value in waiting.

Original language	English
Publication date	22 May 2020
Place of Publication	London
Publisher	Centre for Economic Policy Research
Publication status	Published - 22 May 2020
Externally published	Yes

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https://voxeu.org/article/covid-19-and-option-value-waitingLicence: Unspecified

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title = "Strategies for Covid-19: The Option Value of Waiting",

abstract = "Increasing and recurring pleas to return to normality in order to avoid the economic costs of a lockdown rely on the idea that {\textquoteleft}natural{\textquoteright} herd immunity may be achieved by letting Covid-19 spread without measures to contain it. This column discusses key uncertainties associated with Covid-19 and argues that there are substantial benefits in keeping the lockdown in place in order to first learn more about Covid-19 and then decide on the best strategy. This logic is based on option theory which shows that when a strategy has irreversible consequences and there are important uncertainties, there is substantial value in waiting.",

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N2 - Increasing and recurring pleas to return to normality in order to avoid the economic costs of a lockdown rely on the idea that ‘natural’ herd immunity may be achieved by letting Covid-19 spread without measures to contain it. This column discusses key uncertainties associated with Covid-19 and argues that there are substantial benefits in keeping the lockdown in place in order to first learn more about Covid-19 and then decide on the best strategy. This logic is based on option theory which shows that when a strategy has irreversible consequences and there are important uncertainties, there is substantial value in waiting.

AB - Increasing and recurring pleas to return to normality in order to avoid the economic costs of a lockdown rely on the idea that ‘natural’ herd immunity may be achieved by letting Covid-19 spread without measures to contain it. This column discusses key uncertainties associated with Covid-19 and argues that there are substantial benefits in keeping the lockdown in place in order to first learn more about Covid-19 and then decide on the best strategy. This logic is based on option theory which shows that when a strategy has irreversible consequences and there are important uncertainties, there is substantial value in waiting.

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