Optimal testing and social distancing of individuals with private health signals

• Published in: Review of economic design 2024-09
• Main Author: Tröger, Thomas
• Format: Article
• Language: English
• ISSN: 1434-4742; 1434-4750
• DOI: 10.1007/s10058-024-00367-9

In an epidemic, the regulation of social distancing and testing is critical for the large group of individuals who are possibly infected, but have not developed clear, distinct symptoms. Each individual’s reaction to a regulation scheme depends on its private probability assessment of being infected. Assuming no monetary transfers, we identify a simple class of schemes for welfare maximization: all individuals who ask for a test are tested with the same probability, independently of their infection probabilities, and the social distancing regulation depends on who asks for a test. Social distancing has a double role: to provide incentives so that the right people get tested, and to curb the spread of the disease. If testing capacities are scarce it can be optimal to test only a randomly selected fraction of those who ask for a test, and require maximal social distancing precisely for those individuals who ask unsuccessfully. If public costs and benefits are small, laissez faire is optimal.