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Implications of Stochastic Transmission Rates for Managing Pandemic Risks / Harrison Hong, Neng Wang, Jinqiang Yang.
- Format:
- Book
- Author/Creator:
- Hong, Harrison.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w27218.
- NBER working paper series no. w27218
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2020.
- Summary:
- We develop a model of pandemic risk management and firm valuation. We introduce aggregate transmission shocks into an epidemic model and link valuations to infections via an asset-pricing framework with vaccines. Infections lower earnings growth but firms can mitigate damages. We estimate a large reproduction number R0 and transmission volatility for COVID-19. Using these estimates, we assess the accuracy of deterministic approximations based on R0. Our model generates predictions consistent with data: unexpected infection resurgence, non-monotonic mitigation policies, and higher price-to-earnings ratios during a pandemic. Valuations would be significantly lower absent mitigation and a high vaccine arrival rate.
- Notes:
- Print version record
- May 2020.
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