Since the SARS-CoV-2 virus (which causes Covid-19) surfaced in the United States early in 2020, our health lexicon has grown considerably. “Herd immunity,” a term seldom uttered prior to 2020, is now commonplace. According to infectious disease experts, depending on the infectiousness of a virus, herd immunity is achieved when 60% or more of the population is immune. However, since a Covid-19 vaccine will unlikely be 100% effective, reaching 60% immunity will require that over 60% of the population be vaccinated or develop immunity through antibodies from infection. If a vaccine is 70 – 75% effective, which medical experts regard as optimistic but attainable, then achieving herd immunity will require an approximate 80 – 85% vaccination rate. Unfortunately, given recent national polling, realizing such a high vaccination rate will be a challenge. An August NPR/PBS/Marist poll reported that 35% of Americans said they would not get the vaccine when it becomes available. If over a third of the population is unvaccinated, then the country may fall well short of the rate necessary for herd immunity.
Achieving herd immunity is the best way to get the economy firing on all cylinders. In a recent National Bureau of Economic Research paper, University of Chicago economists Austan Goolsbee and Chad Syverson reported that “people voluntarily choosing to stay home to avoid infection” will be a continuing drag on the country’s economic recovery. A September 2020 report by economist Raj Chetty and a team of Harvard researchers concluded that “economic recovery from a pandemic ultimately requires restoring consumer confidence by addressing the root health concerns themselves.”
Economic theory may help us understand how the country might reach herd immunity. Vaccination against Covid-19 provides an excellent example of what economists call a “positive externality.” An immunized person not only protects himself, but also provides a spillover benefit by not spreading the virus to others. Bystanders who receive this benefit do not compensate those who have been vaccinated. Consequently, too few people get vaccinated because they are undercompensated for the benefit they provide to society.
Economists have identified three policies for dealing with positive externalities: property rights, regulation and subsidy. Giving a property right to the inoculated to charge bystanders for the benefit provided won’t work, because the costs of all the required transactions would be prohibitive. Regulation is used in the military, which can order soldiers to get vaccinated, but would likely be difficult to implement with the population at large. A subsidy solution has some merit and has actually been proposed by economist Robert Litan, who recommended that the government pay $1,000 to every person who gets a vaccine. Since “people respond to incentives,” such a subsidy has potential. It would have a $300 billion price tag (at a vaccination rate of about 90%), but if solving the health crisis restores consumer confidence, the cure may be far less costly than the disease. A policy long shot, but food for thought.