Coughing and Sneezing Kids — linking to financial contagion

A superb post from Matt Kahn of UCLA. It is insights like these which makes economics such an interesting subject to teach.

He says he does not understand why Coughing and Sneezing Kids are sent to school?

My son has been sick the last couple of days and I’m in deep thought about the social costs of local contagion effects.   When I pick him up at school, I see that many parents send their sneezing and coughing children to school.  Who are they and why do they do this?  I don’t think they are cruel to their children and I doubt that they embrace Nietzsche’s line about “what doesn’t kill you makes you stronger”. Instead, I view it as an ethical lapse and a failure of the Coase Theorem.

Basic price theory can explain why parents send sick kids to school..  For parents who face a high price, in terms of inconvenience  and out of pocket expense, for keeping a kid at home — they send their sick kids to school.  Dora and I have special jobs that allow us to adapt on the fly and to pull our son out when we need to. He doesn’t go to school when he is sick.

Basic price theory can explain why parents send sick kids to school..  For parents who face a high price, in terms of inconvenience  and out of pocket expense, for keeping a kid at home — they send their sick kids to school.  Dora and I have special jobs that allow us to adapt on the fly and to pull our son out when we need to. He doesn’t go to school when he is sick. If this logic is correct,  then parents with less income and more young kids (under age 6) should be the most likely to send their sick kids to school.   This conjecture could be tested.

I do not mean to stimulate another discussion of class warfare.  Instead, I’m interested in the broader question of who chooses to internalize potential externalities and takes steps to internalize such social costs rather than impose them on others.  If capitalism is efficient, then why don’t new markets arise to nip such costly externalities?

🙂

There are multiple economics concepts here:

  • Externalities and Contagion – Coughing and Sneezing Kids spread are like negative externalities and the diseases spread like financial contagion. Kids have low immunity and pick up cough and cold from their colleagues at school.
  • Price of keeping externalities in check are too high. Either one of the parent has to stay home and give up his income or cost of baby sitting is too high. It could be both as well.

He says Coase theorem makes a sharp prediction for this which is to internalise the social costs:

The Coase theorem makes a sharp prediction.   If parents of sick kids at a School face a  babysitter financing constraint, they could call the non-sick kids’ parents and ask them to jointly finance a babysitter.  In a class with 30 kids — if two kids are sick then 28 are healthy. If it costs $100 to hire a babysitter, then the cost that day for the healthy kids’ parents would be 2*100/28 = $8.    Most parents would be willing to pay this to reduce their kid’s exposure to a sick kid for the day. So, my point is that there are gains to trade here.  The parents of the sick kid have the property right to send their kid to school. The “victims” in the classroom should make a transfer to these parents to keep the kid home on these days when the kid is sick. I see no moral hazard effect from this scheme.

Note that I’m merely financing a safety investment. I’m not excluding anyone or asking anyone to suffer. Staying home from school when sick is the socially efficient investment but this isn’t taking place and I’m offering a financing solution to raise the probability that this takes place and disease contagion is minimized.

Hmm. reminds me of the superb Krugman analysis  using baby coop to explain economic recessions and Japanese 1990s crisis.

Kahn ends superbly:

In an earlier time period when women’s labor force participation was lower, did fewer sick kids go to school?

Such exciting ways to think about applying principles of economics…Coase theorem explained this way sinks in much easier than all that jazz explanation….

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