Throughout history, epidemics have been a recurring terror to humanity. In vulnerable societies prior to the development of modern medicine an epidemic could wipe out 50-60% of a population. With the possible exception of AIDS, modern epidemics are less devastating to affected communities, but still impose large costs on society. Even more mundane diseases such as influenza impose large costs. A bad outbreak of the flu that causes, say, 10% of the population to loose on average 5 working days, represents a severe economic cost to society no matter how trivial the disease is. On the other hand, viruses such as the Ebola virus with a fatality rate close to 90% cause considerable harm to small contained areas even if the extreme mortality in itself prevents the disease from spreading to affect large populations.
One common feature of many epidemics is that they tend to move through a population and then disappear. The epidemic may reappear later, possibly in a mutated form, but still represents disjoint events.This class of epidemic has not yet been analysed in the economic literature. Often outbreaks these epidemics are predicted, leading to the additional question of how to implement preparatory health policies anticipating the outbreak. This paper fills two important gaps in the literature. First we analyse optimal vaccination policy for an epidemic that eradicates itself. Second, we analyse optimal preparatory vaccination schedules. Optimal preventive policies are likely to depend on parameters that are intrinsically uncertain.
ISBN 82-7756-167-9