Fast forward to 2020, and British authorities seem set on teaching the world another lesson about incentives and the laws of unintended consequences.
This time, British authorities are discussing the introduction of an immunity passport, perhaps to be re-branded as a 'health passport.' The idea is that a person who has recovered from COVID-19 is no longer able to become infected or to introduce the virus to anyone else, so the passport holder should be free to opt out of the measures that the rest of the population are undertaking to prevent the spread of the virus.
There are obvious problems with such a scheme, most notably the untested assumption that people who have recovered from infection with SARS-CoV-2 enjoy long-term immunity. And I won't even address the ethical issues involved in segmenting the population this way.
But the most obvious problem with this health passport scheme is that it creates an obvious perverse incentive -- namely, the incentive, particularly among young people, to become infected so as to claim the bounty -- er, passport.
How much might this passport be worth to a young person? A resonable guess might be based on the results from a paper titled, The Effects of Graduating from College During a Recession on Living Standards, published in the journal, Economic Inquiry, by Professors Daiji Kawaguchi and Ayako Kondo, of the University of Tokyo. Studying US data, they report:
"Those who graduate in a local labor market with a 1 percentage point higher unemployment rate experience about a 7%–9% reduction of hourly wage up to 18 years after graduation."
These results are similar to those published earlier by Lisa Kahn in a paper titled, "The Long-Term Labor Market Consequences of Graduating from College in a Bad Economy," published in Labour Economics. In particular, Kahn reported
"...an initial wage loss of 6 to 8% for a 1 percentage point increase in the unemployment rate measure. This effect falls in magnitude by approximately a quarter of a percentage point each year after college graduation. However, even 15 years after college graduation, the wage loss is 2.5% and is still statistically signficant. Using state rates, the OLS results are insignificant but the IV estimates imply a 10% wage loss which persists, remaining statistically significant 15 years after college graduation."Of course, the circumstances in these two papers are different from the circumstances surrounding health passports, but the broad principals appear applicable. Graduating when the labor market is depressed can result in a material decline in income for at least two decades.
Given these estimates, the present value of the magnitude of this effect might be on the order of GBP 100,000. For some students, the magnitude of the effect is likely to greater, and for other students the magnitude of the effect is likely to be more moderate. And it's worth noting that the estimates cited in these papers involved recessions that were far less severe than the current downturn -- another reason that this GBP 100,000 estimate doesn't strike me as unreasonable.
Let's imagine that every 20-something in the UK were offered 100,000 pounds to contract COVID-19. Of course, some would decline straightaway. But some significant percentage is likely to consider the offer. After all, the disease is reported to be moderate in young people. They may not even develop symptoms. And if they develop symptoms, the symptoms probably will be mild. The symptoms are unlikely to become sufficiently severe to require hospitalization. But even then, the chances of requiring an ICU bed or a ventilator are pretty remote. And the chance of death from COVID-19 is quite modest. So for some material segment of the population, getting a health passport in exchange for acquiring COVID-19 will appear to be a reasonable proposition.
Of course, those people intent on acquiring these health passports won't even know whether they're infected until 5-6 days after the infection has been acquired, during which time they'll be spreading the infection, including to people in high-risk groups or who otherwise have no interest in becoming infected.
Passport seekers might argue that they could be tested daily so as to avoid infecting anyone else during this period. But the notion of allocating scarce tests to people trying to acquire COVID-19 impresses me as a perverse outcome.
Overall, an immunity passport strikes me as a terrible idea that neglects the simple but fundamental notion that incentives matter. If we give people an incentive to acquire COVID-19, some people will respond by acquiring the infection. And their efforts to acquire the infection will result in the virus spreading more quickly within the population -- an outcome that is diametrically opposed to the explicit goals of the Government.
If the strategy of the Government were to develop herd immunity throughout the population, the use of immunity passports might be a reasonable tactic, since the incentive created by the passport would be consistent with the strategy in that case. But given that the UK Government is ostensibly pursuing a strategy in which people are being asked to avoid getting the virus, the incentive created by the passport appears perverse.
I urge policy makers to reject proposals to introduce an immunity passport in favor of the current plan: to reduce the number of infected persons to a level that would allow the introduction of intensive testing and contact tracing in an attempt to further reduce local infections, similar to the policy enacted in South Korea.
