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The Externalities of Pandemics

Written in partnership with the UP CIDS Program on Data Science for Public Policy (DSPP)

Tara Alessandra Abrina,1 Julius Paolo Basa,2 Jane Lynn Capacio,3 and Joyce Marie Lagac4

What are the costs (or benefits) of a pandemic to individuals and to society at large?


Didto sa sabungan, singgit taman-taman
Llamado dehado ang iyang gipustaan
Naunsa ba kadto nga pagkabutanga
Manok niyang pula naigo man sa mata.
— Sabungero, Max Surban

Some costs to society are as invisible as the virus

Sometime during the second week of March 2020, an impassioned sabungero would make his way to the New Davao Matina Gallera to watch cockfight after cockfight from the grandstand. The entire week, he would be shuffling, cheek-to-shoulder through the crowds, shouting and signing wagers at the kristos, money exchanging hands. Unbeknownst to him and 427 other attendees of the derby, he would be carrying a deadly virus that would go on to cause the deaths of 11 people, and a thousand possible infections in the region alone.5 We hear stories like this throughout the history of pandemics, of so-called “super-spreaders,” like Patient 31 in South Korea for the COVID-19 crisis.6

Stories like this demonstrate the extent to which externalities silently work through the behaviors of otherwise rational individuals. Externalities are costs (or benefits) of one person’s private behavior that are incurred or received by external parties who should not otherwise be affected by their decisions. To our sabungero, attending the derby probably only cost him his travel expenses. But to the 427 attendees who were successfully traced, the cost, the externality they received, was the risk of infection and, to the unfortunate 11, the real risk of death. Because our sabungero, the source of the externality, was unaware that he was carrying the deadly disease, he was unable to internalize the full cost of his decisions, and thus behaved as though he had one eye closed shut. This goes to show that in a pandemic, people can be silent carriers—of both virus and detrimental costs to society.

In Table 1, we list a few more externalities that apply to individual behaviors in a pandemic, both positive and negative (yes, externalities can be positive too!).

Solutions to externalities and the value of a human life?

Several theoretical solutions exist to correct for pandemic externalities. In the public realm, these include (1) taxing or imposing fines for unauthorized movement, just like they do to suspected or positive cases in Hong Kong and Singapore,7 or (2) imposing a restriction on the movement of the entire population, just like the Luzon lockdown in the Philippines.8 In theory, these solutions, which respectively use either (1) price or (2) quantity as policy levers, are designed to help people internalize the public effects of their actions and influence decisions on activities that create negative externalities.

However, in practice, it is much harder to design and then implement a balance between the costs and benefits of public health policy. How many human lives must be saved in order to justify the cancellation of a week-long, much-awaited cockfight derby? How about the loss of 20 million jobs in the United States?9 And what costs will you pit against the benefits of human life? The philosophical, ethical, and moral implications in such questions are daunting for any one person to pursue alone.

Moreover, price and quantity restrictions are far from being the be-all and end-all to optimal social change. It would have been easy to justify closing a derby if it could save only one life. But for people with extreme, life-threatening motivations, such as the need for critical medical services like a dialysis,10 these restrictions are but a small price to pay. The costs and benefits are human lives, and a lockdown simply transfers risks from one group to another.

In the interest of caution, therefore, there are no straightforward policy recommendations. The only duty that a government will have, then, is to be absolutely aggressive in identifying the silent carriers of these externalities, and then equally aggressive in being upfront and transparent about these cases. Otherwise, a single country can become a super-spreader of a virus, too, and the whole world would be forced to bear the brunt of these externalities.