Litan and Mankiw Endorse Paying People to Take Vaccine

(p. 5) What’s the best way to get the economy back on track after the Covid-19 recession? Simple: Achieve herd immunity. And what’s the best way to achieve herd immunity? Again, simple: Once a vaccine is approved, pay people to take it.

That bold proposal comes from Robert Litan, an economist at the Brookings Institution. Congress should enact it as quickly as possible.

. . .

Recent research by the University of Chicago economists Austan Goolsbee and Chad Syverson has found that the government-mandated shutdowns account for just a small part of the decline in economic activity. The main reason people aren’t spending is that they are afraid to leave their homes and contract the virus. That hypothesis explains my own behavior. I have not stepped foot on an airplane or inside a restaurant for six months.

. . .

Immunology, meet economics. One of the first principles of economics — perhaps the most important — is that people respond to incentives. Applying this principle to the case at hand, Mr. Litan recommends that the government pay $1,000 to whoever gets the vaccine. With a large enough incentive, most Americans are likely to get vaccinated.

This proposal is textbook economics. (I’ve written some of the textbooks.) As all economics students learn, when an activity has a side effect on bystanders, that effect is called an externality. In the presence of externalities, the famous theorems of economics that justify laissez-faire do not apply. Adam Smith’s vaunted invisible hand can no longer work its magic.

A classic example of a negative externality is pollution, and the simplest and least invasive policy solution is a tax on emissions. In economics-speak, such a tax internalizes the externality: It induces polluters to take the cost of pollution into account by giving them a financial incentive to cut emissions. That’s why I have written here many times that a tax on carbon emissions is the best way to deal with global climate change.

Vaccination confers a positive externality. When you get vaccinated, you benefit not only yourself but also your fellow citizens by helping society take a step toward herd immunity. In this case, internalizing the externality requires not a tax but a subsidy, as Mr. Litan suggests.

For the full commentary, see:

N. Gregory Mankiw. “A Vaccine Subsidy Licks 2 Crises With One Shot.” The New York Times, SundayReview Section (Sunday, September 13, 2020): 5.

(Note: ellipses added.)

(Note: the online version of the commentary has the date Sept. 9, 2020, and has the title “Pay People to Get Vaccinated.”)

The Robert Litan op-ed mentioned above is:

Litan, Robert E. “Want Herd Immunity? Pay People to Take the Vaccine.” Brookings Institute Op-Ed. (Tues., Aug. 18, 2020) URL:>

The Goolsbee and Syverson NBER working paper mentioned above is:

Goolsbee, Austan, and Chad Syverson. “Fear, Lockdown, and Diversion: Comparing Drivers of Pandemic Economic Decline 2020.” NBER Working Paper #27432, June 2020.

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