Seminar: Flavio Toxvaerd, University of Cambridge.

Recurrent Infection and Externalities in Treatment.

Abstract: This paper studies a model in which a population of fully rational and forward-looking individuals is exposed to a welfare reducing infectious disease. Individuals non-cooperatively choose whether to undergo privately costly treatment which, if successful, restores the individual's susceptibility. It is shown that the game has strategic complementarities, in the sense that the benefits to treatment for a given individual are increasing in the treatment of other individuals. For extreme levels of disease prevalence, equilibrium play is uniquely determined and socially optimal. For intermediate levels of disease prevalence, multiple perfect foresight equilibrium paths coexist and can lead to different steady states. Furthermore, equilibrium play may be socially suboptimal.