A great deal of government policy during the Covid crisis has involved regulation. Given a choice, economists usually prefer to use incentives. Altering the relative costs and benefits of an action is a well-established way to alter behaviour.
Perhaps the government has been listening. A big stick will now be waved at people who fail to self-isolate when they ought to: breaking this regulation can be punished by a fine of up to £10,000.
The size of the penalty seems large enough to deter people from going out and about when they should be staying at home. The case in favour of the policy seems open and shut.
However, the fine alters another incentive in the test and trace regime. The bigger the fine for breaking the rules, the less likely it is that people will supply the correct contact information in the first place.
Which of these two incentives will predominate is a purely empirical matter and one which is hard to predict in advance. Both undoubtedly exist, and the impact on the test and trace system remains to be seen. But it may just blow the scheme out of the water.
We do not know the source of the proposal within the machinery of government. SAGE, the scientific group which has been advising the government during the pandemic, has no economists as members. But there are well over 1,000 economists working directly for the Government Economic Service. Have none of them made this obvious point to ministers about the different incentives?
On a more positive note, vulnerable groups have responded well to incentives created by the information which has emerged about the virus. No less than 89 per cent of all Covid deaths occur in the over 65 age groups. Even more pertinently, those with pre-existing medical conditions account for 95 per cent of all Covid mortalities.
There is a strong overlap between these two groups. Many of these individuals have altered their behaviour dramatically. They are shielding. As a result, total deaths remain low given the number of infections.
German has experienced less than a quarter of the number of deaths as the UK. Its case fatality rate – the percentage who die once they catch the disease – among the elderly is the same as in the UK. The Germans have simply been much more effective at preventing the elderly from catching it in the first place.
An absolutely crucial part of any strategy is to try and keep the virus out of care homes. It is not possible for the very elderly in care homes to change their behaviour. Their environment is decided for them.
Care homes already have the incentive of reputational risk to avoid the virus spreading. But it must be worth reinforcing this with a public policy of substantial monetary incentives for those homes which are able to remain virus-free.
Whatever the incentive structure might be, a more subtle and targeted approach is needed than that of blanket lockdowns. These simply generate huge social and economic costs, with little in the way of overall health benefits.
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