NBER Working Paper No. 27941
Issued in October 2020
Thinking beyond Covid-19, there is a growing interest in what economic structures will be needed to face ongoing pandemics. In this paper we focus on the diagnostic problem and examine a new paradigm of voluntary self-testing by private individuals. People without symptoms face daily choices of either taking the risk of going out (to work and socialize), versus staying at home in self-isolation. Our theory shows that two types of people voluntary test themselves: those who otherwise would have self-isolated, and those who would have gone out indiscriminately. Our central insight is that the equilibrium infection risk falls when home-based testing becomes cheaper and easier to use, even if tests are not always accurate. Our results challenge the clinical mainstream view that diagnostic testing is a prerogative of the medical profession, and supports the notion that frequent self-testing is vital for an economy facing an ongoing pandemic.