Fearonomics

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COVID-19 has had a disastrous effect on the economy. While some portion of the economic effect is people becoming ill, much of the effect is due to individuals changing behavior to avoid contracting the disease. For instance, people are much less likely to go shopping, eat at restaurants, and travel. These latter effects are termed “fearonomic effects” in a recent paper by Ma, Kim, Cohen and Neumann (2020).

To measure this impact quantitatively, the authors look at actual 2020 economic activity in China during the Lunar New Year (LNY) celebrations and compare them to projections. The projection is basically just the previous year’s economic activity plus projected GDP growth prior for 2020 to the pandemic (+6%). Using this approach, they find:

During the lockdown period, 78% of all restaurants were closed and lost all of their revenue, 16% lost 70% to 90%, and the rest (5%) lost less than 70%. For cinemas, although the 2019 LNY vacation week revenue was $0.89 billion, the revenues from the same week this year was less than 0.1% of the 2019 revenue…

The COVID-19 epidemic is estimated to have cost China’s economy $283 billion ($196-$369 billion), that is, ¥2.0 trillion Renminbi (¥1.4-¥2.6 trillion) during the LNY week (immediate impact). Reduced restaurant and movie theater business ($106 [$103-$109] billion, 37.5% [36.4%-38.5%]) and reduced public transportation use ($96 [$13-$179] billion dollars, 33.9% [4.6%-63.3%]) explain most of this loss, followed by travel restrictions and the resulting loss of hotel business and tourism ($80.36 billion, 28.4%).

The estimated $283 billion loss during the LNY week represents 1.9% of China’s 2019 GDP

The authors also create a checklist for estimating the economic impact due to fear of contagion. While the Ma et al. (2020) paper focuses on the short-run impact of COVID-19 during the Lunar New Year, future studies should examine the long-run economic impact as well.

Source:

• Ma S, Kim DD, Cohen JT, Neumann PJ. Measuring “fearonomic effects” in valuing therapies: an application to COVID-19 in China. Value in Health. 2020 Jul 27.

from Verdure https://bit.ly/2USrwlW