Economic essay

Optional Assignment for EEP101/ECON125 Spring 2020 James Sallee This assignment asks you to write a short essay applying key concepts of the class to COVID-19. COVID-19 is not quite a classical environmental problem, but it shares the same basic features of many environmental problems and thus serves as a potential illustration (and perhaps test) of many of the core ideas in the course. Requirements:

• Write an essay answering the prompts below. The essay must be between 1500 and 2000 words.

• Each essay will be sent randomly to another student for peer review. (This will not be anonymous.) Peers will write comments/critiques of your essay. Each comment/critique must be between 300 and 400 words.

• To get credit for the assignment, you must (a) write your essay, (b) complete a peer review and (c) follow the formatting instructions below to turn in your essay and peer review in one file.

Grading: I will review the submissions and assign a score out of 100. If you choose to participate your final score in the class will whichever is higher of: (a) your original letter grade, or (b) the letter grade you would have earned given the established curve if your COVID-19 assignment counted for 20% of your grade, while the remaining material counted for only 80%. That is, I will count the COVID-19 assignment as 20% of your grade, changing the weight on the remaining material, unless it somehow hurts you (which is not likely). I will determine the curve and letter grades before accounting for any optional assignments to ensure that the letter grade of those not participating are unaffected by the assignment. Due date: You must submit your initial essay on the last day of class, F May 1. You will then be randomly assigned someone’s report to referee. You will need to turn in your assignment with your referee item during RRR week on F May 8.

Formatting: Your essay must have the following information at the top as a header that looks like this: COVID-19 Optional Assignment [Your Name] [Your Student ID] Word Count My Essay: XXXX Word Count Peer Review 1: XXX Word Count Peer Review 2: XXX List the prompt number and title that you choose: I.e., Prompt 2: Regulation

[Your essay here.] If you answer more than one prompt, repeat this structure: Prompt 4: VSL

[Your essay here.] …repeat as needed Peer Review: [Name of Student I reviewed]

[Your peer review comments here]

Prompts: Below are several prompts. You may choose to respond to only one, or several. You are free to agree, elaborate and expand. And you are equally free to disagree and explain why. You are to be graded on the quality and rigor of your argument, not on whether you argue a particular answer. You are more than welcome to reject the validity of these concepts to the present health crisis; I am interested in thinking about COVID-19 as a “test” of the relevance of our core policy ideas to the present problem. If you have a different idea that is clearly related to the content of the course, you may write about that idea. Hypothetical infection tax: Suppose it were possible to map every time someone infects another person. If that were possible, then we could simply levy a tax such that every time someone infects another person, they have to pay a tax.

1. Pigouvian prescription: If we could administer the hypothetical infection tax, we should implement such a tax, and that would restore market efficiency. That is, if such a tax were imposed, then people would choose behaviors that efficiently balance benefits against the costs of infecting others.

2. Regulation: To impact behavior, the main activity of governments has been to shut down parts of the economy, impose restrictions on group sizes and meeting places, and add other restrictions via shelter in place orders. These policies are analogous to traditional “command and control” regulations and they are inefficient as compared to the hypothetical infection tax.

3. Second-best policies: The hypothetical infection tax is not feasible, but what is feasible is for law enforcement to issue fines for violations of local shelter in place rules. Explain what the Diamond model implies about the second-best fine for violating a shelter in place order. Are the insights from the Diamond model likely to be substantively important in the real world?

4. Second-best policies II: Explain whether or not fines for violation of shelter in place regulations are a good substitute policy for the hypothetical infection tax.

5. VSL: When deciding what policies are worth pursuing, government actors and the public are implicitly making judgments about how many resources to spend to try to save lives. It is reasonable to use conventional estimates of the VSL when making these judgments.

6. Public goods: A better model for understanding COVID-19 is public goods. In this view, everyone can contribute to a public good via hygiene and social distancing, etc. The public good model suggests that relying on such voluntary contributions will lead to an inefficient outcome, and thus policy intervention is needed.