Contagion, Migration and Misallocation in a Pandemic

We present a multi-city economic model to study the endogenous choice of migration and to evaluate various policy alternatives during a pandemic. We combine a traditional epidemic dynamic model with endogenous migration decisions between cities and provide analytical solutions under two situations: laissez-faire equilibrium and social optimal policy. By studying the relationship between migration rates of different types of agents and the abundance of hospitalization resources in different cities, we find that migration rates under laissez-faire equilibrium and under social optimal policies change differently, especially for infected people. Moreover, through numerical analyses we observe that total social welfare can be increased by around 25% when collective actions are taken in a two-month span. These results express the necessity of the central government to intervene in migrations and to make efforts to distinguish those infected agents when facing a pandemic such as COVID-19 that has been occurring since the end of 2019