This paper characterizes the optimal control of a recurrent infectious disease through the use of prevention and treatment. We find that under centralized decision making, treatment induces positive destabilizing feedback effects, while prevention induces negative stabilizing feedback effects. While optimal treatment pushes prevalence towards the extremes, optimal prevention pushes it towards interior solutions. As a result, the dynamic system may admit multiple steady states and the optimal policy may be history dependent. We find that steady state prevalence levels in decentralized equilibrium must be equal to or higher than the socially optimal levels. The differences between the equilibrium outcome and the social optimum derive from the existence of a pure externality effect and a separate risk effect due to individuals being small. Last, we derive two separate corrective subsidy schemes that decentralize the socially optimal outcome, namely subsidies to prevention and treatment and a tax on the infected.

Ph.D. in Economics, the London School of Economics. Flavio is a University Lecturer (with tenure) at the Faculty of Economics, University of Cambridge and a fellow of Clare College. He is also a Research Affiliate ofthe Centre for Economic Policy Research. 

His main research interests include microeconomic theory, game theory, industrial organization, corporate finance and economic epidemiology. He has taught courses on these and other subjects at all levels. His research has been published in the Journal of Economic Theory, the Journal of Economic Dynamics and Control and Journal of Theoretical Biology.

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