Externalities and Incentives: The Economics of COVID

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- [Alex] Hi, everyone.

Today, I want to talk about
applying some of the principles

of economics, namely
externalities and incentives,

to understand COVID
and vaccine policy.

Let's begin with a simple flu shot.

A flu shot is a great example of
a good with a positive externality.

When I get a shot,
I benefit myself,

but I also benefit other people

because I'm less likely
to transmit the virus.

In fact, the economist
Corey White has estimated

that every two flu vaccinations
save someone else

from getting sick
and having to miss a day of work.

And every 4,000 vaccinations
saves a life.

That's an incredibly
cost-effective way of saving a life.

The problem is that even though
the social benefits are very high,

people are unlikely to weigh
the social benefits

as high as the benefits
to themselves.

So individuals are
under-incentivized to get a flu shot.

Now we deal with
the external benefits

of vaccinations
in a variety of ways.

In some cases, such as polio,
we require school children

to be vaccinated by law.

In other cases, we offer incentives.

We subsidize vaccines
to keep the price low.

It's not just government policy
by the way.

Some firms will offer
their workers free flu shots.