SARS-CoV-2 is responsible for the current recession in the global economy. However, there is an information problem underlying the coronavirus pandemic, according to Professor Joshua Gans from the University of Toronto, Canada. He presented this insight along with his book “The Pandemic Information Gap: The Brutal Economics of COVID-19” at the second #ZEWBookTalk on 17 December 2020. In his book, he explains the economic choices that have been made in response to the pandemic and what their motives are. ZEW President Professor Achim Wambach moderated the subsequent discussion with the speaker.

Economist Joshua Gans at the second edition of the #ZEWBookTalk.
Economist Joshua Gans at the latest edition of the #ZEWBookTalk on the fundamental information problem in the Coronavirus pandemic.

“Pandemics in themselves are controllable,” Gans explained. The coronavirus pandemic, however, is fuelled by a lack of information. Most infection chains are untraceable and therefore difficult to interrupt. “If we could isolate all infected people immediately, there would be no pandemic. So the COVID-19 crisis is essentially an information problem,” Gans said. Since infection chains are not sufficiently traceable, all people must be considered potentially infected. One consequence is to impose lockdowns worldwide, which comes at a high economic cost, according to the university professor. A good information system is therefore needed to detect infections. According to Gans, it is difficult to identify people infected with COVID-19 because there are often no visible symptoms. “So we need an alternative method to clearly identify these infections. This is the fundamental information problem in the coronavirus pandemic: who is infected? How can we reach and isolate those who are infected to prevent further spread of the virus?,” the micro-economist asked.

Waiting for herd immunity to develop at some point or for a vaccine to become available is not the solution to avoid high death rates, Gans said. Both things simply take too long. His alternative approach is to test, track and isolate. “This approach helped, for example, in dealing with the SARS crisis of 2002 to 2003, helped by the fact that the disease produced clear symptoms and those infected were quickly isolated. Affected countries like South Korea and Taiwan thus had enough information at hand to be able to fight the virus properly after only a few months,” said Gans. The countries drew lessons from this and applied their experience during the COVID-19 crisis. With success: South Korea and Taiwan were able to keep their infection figures low.

The testing economy

Gans’ talk also focused on what he calls ‘testing economy’. This is about people being repeatedly tested over a longer period of time, for example through rapid tests. “Quick and cheap tests have a reputation for being inaccurate. But rapid tests give you exactly the information you need. Namely, they quickly reveal who is infected. However, people are not focused on the information problem, but rather on the diagnosis of these rapid tests,” Gans argued. As a result, he said, the tests are often not considered useful. Yet this is precisely the big problem, because it perpetuates the information problem, the economist explained, adding, “Knowing about an infection quickly is more important than having a very accurate test result many days later. In addition, possible errors could be counteracted by an appropriate frequency of tests.”

According to Joshua Gans, there are various ways to solve the information problem. One possibility is to test the entire population. Slovakia, for example, did this and the number of infections fell sharply as a result. “But a one-time test of the population is not enough to solve the information problem. The infection figures must be counteracted continuously. Since this was neglected, the infection figures in Slovakia have risen again,” said Gans. Another measure would be to rely on contact tracing like it is done in Japan. If we solve the information problem by such measures, the coronavirus pandemic could be controlled and thus economic life could be maintained, Gans summarised the message of his book.

Can we solve the information problem using an app?

Following the lecture, ZEW President Achim Wambach discussed central theses of the book with Joshua Gans. “In Germany, a contact-tracing app is used to track down chains of infection. However, many people do not use it, for example because of data protection concerns. Why is that so?,” Achim Wambach wanted to know. Tracing infected people, said Gans, comes with great difficulties. A voluntary app in particular does not seem to be very effective. This is not only due to data protection concerns, but also to the way such apps work. Here, too, the information problem becomes visible. “Many apps do not identify contact networks in advance. If you knew someone was infected, you could immediately distance yourself. If we solved such information problems, we could manage the COVID-19 pandemic,” Gans explained. Other topics of discussion included the current second wave of infection, the influence of US President-elect Biden on the incidence of infection in the United States, the development and distribution of the coronavirus vaccine and the vaccination order for at-risk groups in the population. Around 100 viewers followed the second #ZEWBookTalk via a live stream.

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