BackCovid cure is worth 5-15% of global wealth
People are willing to put this much value on the cure to avoid a permanent loss of their wealth on account of the pandemic, shows a study
PremiumThe current pandemic caught the world unawares, wrecking economies all over the world. It might be worth quantifying how much we are willing to pay to get out of this crisis and mitigate future uncertainty of this order. Viral Acharya of New York University and his co-researchers have come up with a ballpark figure for this: 5-15% of total wealth.
The economists make use of data on how stock markets reacted to various updates on coronavirus vaccines. As expected, stock prices rose every time the news was positive. The study records an average rise of 4-8% in stock returns on a daily basis every time the vaccine appeared closer by one year.
The extent of market exuberance upon receiving positive news on vaccine trials represents the expectations of a future when the pandemic would have definitively ended with the arrival of a vaccine. The authors compare a non-pandemic state with a pandemic state in terms of labour and consumption in an economy. A pandemic scenario sees a contraction in labour, and subsequently in consumption. This leads to a contraction in people’s wealth, which the study measures via stock returns.
Hence, the value of a cure to the pandemic is the amount of wealth people are willing to forfeit and will be compensated on reverting to the non-pandemic state. The authors’ estimate—5-15% of total global wealth—corresponds to a 25% contraction in labour during the pandemic.
Further, market participants are willing to pay more if there is increased uncertainty in the frequency and duration of a pandemic. They put as much value to resolving the uncertainty as they do to the cure itself, the authors say.
The framework of this study could be helpful in estimating the cost of preparing against future catastrophes such as adopting clean technologies to mitigate climate change.
Also read: The Value of a Cure: An Asset Pricing Perspective
Snap Fact features new and interesting reads from the world of research.
Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!
