Inframarginal Externalities: COVID-19, Vaccines, and Universal Mandates

COVID-19 vaccine mandates are in place or being debated across the world. Standard neoclassical economics argues that the marginal social benefit from vaccination exceeds the marginal private benefit; everyone vaccinated against a given infectious disease protects others by not transmitting the disease. Consequently, private levels of vaccination will be lower than the socially optimal levels due to free-riding, which requires mandates to overcome the problem. We argue that universal mandates based on free-riding are less compelling for COVID-19. We argue that because the virus can be transmitted even after receiving the vaccine, most of the benefits of the COVID-19 vaccine are internalized: vaccinated individuals are protected from the worst effects of the disease. Therefore, any positive externality may be inframarginal or policy irrelevant. Even when all the benefits are not internalized by the individual, the externalities mainly are local, mostly affecting family and closely associated individuals, requiring local institutional (private and civil society) arrangements to boost vaccine rates, even in a global pandemic. Economists and politicians must justify such universal vaccine mandates on some basis other than free-riding.

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