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ECON 2100: Final Project

(due at 10AM on Wednesday, December 11, 2024)

Please submit two files on LMS: a pdf file with all your answers and an R file

with the code you wrote. The deadline above is firm and will not be extended

for any reason.

Imagine a country that has a population size of 1,000. In January 2022, the country experiences

an outbreak of a highly contagious disease (person-to-person spread) called Virus V. The total

economic cost of getting the disease is $5,000 per person for everyone. This includes treatment

costs, lost wages, discomfort of having the disease, etc. Fortunately, a vaccine developed for a

different but closely related disease can be used for Virus V. The vaccine is claimed to be 60%

effective in preventing Virus V. Vaccination costs $500 per person.

Download “final_data.xlsx” (posted on LMS). This dataset is collected at the end of 2022 and

includes the following information for each resident of the country:

Column B: Whether the individual got Virus V between January-June 2022

Column C: Total number of people (who had Virus V) the individual was in contact with

between January-June 2022 (for individuals who got the virus as shown in Column B, these

interactions occurred before getting the virus)

Column D: Total number of people (who did not have Virus V and were not vaccinated) the

individual was in contact with between January-June 2022 (for individuals who got the virus as

shown in Column B, these interactions occurred after getting the virus)

Columns E-J: Self-reported health status (1 = poor, 5 = excellent), age, income, gender, race,

and educational attainment as of January 2022

1. In R, run a multiple linear regression with Y = Virus V and X = all other variables (except

for Person ID). Which independent variables (X) have significant relationships with the

dependent variable (Y)? Provide interpretations of the variables that are significant.

2. Suppose based on past information on related viruses, the population believes that the

attack rate for unvaccinated would be 85%. Use the 60% claim for vaccine effectiveness

to calculate the attack rate on the vaccinated.

3. Suppose that in January 2022, individuals have information on the probability of the

transmission of Virus V from each person-to-person contact (nearly identical to the

estimate in question 1) and the total number of people who have the virus they will be

in contact with between January-June 2022 (Column C). Based on this information,

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individuals make decisions on vaccination. If anyone decides to get vaccinated, they do

so in January 2022.

Calculate the private benefit of vaccination for each individual in January 2022. What is

the average private willingness to pay (WTP) for vaccination? Note that individuals take

the probability of the vaccinated contracting the virus from the previous question into

account.

4. Suppose that in January 2022, the social planner has the same information as individuals

do in question 2. In addition, the social planner can accurately predict the total number

of people (who do not have the virus and are not vaccinated) who will be in contact with

each individual who gets the virus between January-June 2022 (Column D).

Calculate the social benefit of vaccination for each individual in January 2022. What is

the average social willingness to pay (WTP) for vaccination? The planner also takes the

probability of the vaccinated contracting the virus into account.

5. Is the private benefit the same as the social benefit of vaccination? Why or why not?

Explain.

6. Is the private cost the same as the social cost of vaccination? Why or why not? Explain.

7. Calculate the privately optimal vaccination rate.

8. Is it socially optimal for everyone to be vaccinated? Explain.

9. Propose a policy recommendation to achieve the socially optimal vaccination rate.

Various policies have different pros and cons. What is the downside of your policy

recommendation?

10. Calculate the amount of subsidy the government should offer for each vaccination to

achieve the socially optimal vaccination rate. Hint: Experiment with different values of

the subsidy until the privately optimal vaccination rate (after accounting for the subsidy)

matches the socially optimal vaccination rate (before the subsidy).

11. Some people are naturally immune to Virus V. How would having a higher fraction of

the population who are immune to the virus change your answers to questions 2 and 3?

No need to show any calculations or the precise impact.

12. If you were to add three additional variables to the dataset, which variables would you

like to add and why?