Journal of Chinese Governance

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A balance act: minimizing economic loss while

controlling novel coronavirus pneumonia

Binlei Gong, Shurui Zhang, Lingran Yuan & Kevin Z. Chen

To cite this article: Binlei Gong, Shurui Zhang, Lingran Yuan & Kevin Z. Chen (2020): A balance
act: minimizing economic loss while controlling novel coronavirus pneumonia, Journal of Chinese
Governance, DOI: 10.1080/23812346.2020.1741940
To link to this article: https://doi.org/10.1080/23812346.2020.1741940

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JOURNAL OF CHINESE GOVERNANCE
https://doi.org/10.1080/23812346.2020.1741940

RESEARCH ARTICLE

A balance act: minimizing economic loss while controlling

novel coronavirus pneumonia
a a a a,b
Binlei Gong , Shurui Zhang , Lingran Yuan and Kevin Z. Chen
a
China Academy for Rural Development and School of Public Affairs, Zhejiang University, Hangzhou,
China; bEast and Central Asia Office, International Food Policy Research Institute, Beijing, China

ABSTRACT ARTICLE HISTORY

The outbreak of Novel Coronavirus Pneumonia (NCP) has signifi- Received 6 March
cantly affected China and beyond. How to effectively control such 2020 Accepted 9
epidemic has gradually become a global issue. This paper reviews March 2020
the economic impact of major epidemics such as SARS, H1N1,
and Ebola at the micro-, sector-, and macro-level. The challenge of KEYWORDS
Economic impact of
effective epidemic control is to achieve a balance between viral
epidemics; control
transmission reduction and economic cost. This paper then sum- measures; public health
marizes three main methods to evaluate the effectiveness of sev- events; information
eral control policies. We also find that the adequacy and disclosure; Novel
authenticity of information disclosure is of great importance to Coronavirus Pneumonia
minimize economic loss, as either public panic due to overesti-
mation or lack of public awareness due to underestimation can
cause additional negative economic impacts. Accurate and trans-
parent disclosure of information plays a crucial role associated with
fighting against the epidemic. Finally, the paper puts forward a
number of policy recommendations to minimize economic loss
while controlling the spread of COVID-19.

1. Introduction
Epidemics are a major cause of poor health in developing countries, hindering human
1
capital accumulation and economic growth. According to a study by the U.S. National
Academy of Sciences, global annual direct economic loss due to epidemics exceeds
2
$60 billion. Influenza pandemics are the main type of epidemic. Due to its rapid
mutation rate and strong transmission capacity, the prevention and control of influ-enza
pandemic is rather difficult. As a result, influenza pandemic has a significant impact on
societal operations and is an important challenge to human health and glo-bal
development. The outbreak of Spanish influenza in 1918 infected 500 million peo-ple
worldwide and caused 50–100 million deaths from the period 1918 to 1920, resulting in
economic losses of more than $3 trillion and accounting for approximately 4.8% of global
3
GDP at that time. After the Second World War, along with the global enhancement of
medical conditions, epidemic monitoring and scientific research

CONTACT Kevin Z. Chen kzchen@zju.edu.cn China Academy for Rural Development, Zhejiang
University, Room 1322, Qizhen Building, 866 Yuhangtang Road, Hangzhou 310058, China
2020 Zhejiang University
2 B. GONG ET AL.

capabilities, as well as the establishment of long-term cooperation mechanisms

among countries, the response capacity to emergent epidemics has been greatly
improved. However, other factors, such as the development of transportation
infrastructure, urbanization, population growth and climate change, have
4
accelerated the evolution and spread of pathogens to some extent. Since the start
of the 21st century, the out-break of SARS, H1N1, Ebola, Zika and other emergent
epidemics has once again attracted attention all over the world.
5
Based on a numerical simulation of the economic losses by Burns et al., the GDP
6
loss caused by a medium global major epidemic may exceed $3.5 trillion. Fan et al.
estimated the annual economic loss caused by epidemics to be as high as $570 bil-lion,
accounting for 0.7% of global total income, after taking into account the poten-tial loss
caused by population deaths. Different researchers have very different estimates of
economic losses from epidemics, which influence the prevention and con-trol policies
made by governments and international organizations in response to sud-den outbreaks.
The differences in various estimates are mainly due to different methods. The World
Bank divides economic losses from epidemics, such as an influ-enza pandemic, into four
categories: 1) reduced labor force caused by death; 2) absen-teeism and decrease in
labor productivity caused by epidemics; 3) resources devoted to the control and
treatment of epidemics; and 4) the economic impact of individual protection behavior, as
7
well as public prevention and control policies. However, a large number of studies
merely measure parts of these impacts, and therefore lack a comprehensive evaluation
of the overall economic impacts. This paper reviews the economic impact of epidemics
at the micro-level, sector-level, and macro-level. It then summarizes the prevention and
control measures and introduces effective methods to evaluate the combination of
policies based on major global epidemics (especially SARS, H1N1, and Ebola). This
paper proceeds to discuss the economic impact of the outbreak from different
perspectives, the mechanism through which epidemics affect the economy, and the
balance between epidemic control and economic loss. Finally, this paper puts forward
specific recommendations on how to deal with the outbreak of COVID-19 under the
context of China’s existing realities.

2. Economic impact at micro level

The economic impact of epidemics can be divided into direct and indirect effects. The
direct impact mainly includes resources invested in treating epidemics, such as the
medical costs of infected people, and the development of vaccines and antiviral drugs.
However, due to the obvious negative externalities, the epidemic might not only affect
the labor supply and health of infected people, but may also change the behavior of
different individual and firms. To assess the indirect economic impact of epidemic, it is
important to recognize the responses taken by individuals and firms and their effects at
the micro level. According to microeconomics, individual and firms generally make
specific responses to maximize the utility or profit of individuals or organizations based
on the epidemic information they receive as well as their risk preferences and
endowment conditions. Actually, the effectiveness of these micro behaviors is not only
related to their own infection risk and economic benefits, but also related to the
 JOURNAL OF CHINESE GOVERNANCE 3

sector—and macro-level economic impact as well. If individuals and firms fail to take
effective self-protection measures, more public funds will be invested to control the
epidemic. Compared with the direct economic impact, such as for hospitalization
and medication, the indirect could be much greater, including absenteeism and
reduced productivity, the cost of nonpharmaceutical intervention to reduce disease
8
spread. Taking the Spanish influenza pandemic as an example, among the
estimated eco-nomic losses of $3 trillion, 60% were indirect economic losses
9
caused by prevention and control measures. This section summarizes and
evaluates the economic impact of epidemics on the individuals and firms.

2.1. Economic impact at the individual level

Individuals can be classified as infected, potentially infected and non-infected based
on whether they are infected with the virus. In the short term, for those infected, the
economic impact of the virus comes from the financial burden of medical costs and
reduced income from absenteeism. In the long run, the virus may lead to the
deterior-ation of health status and a decline in the educational level of the school-
age popula-tion, affect the accumulation of individual human capital, and thus affect
the long-term labor market performance after their recovery, bringing about long-
term income decline and the risk of persistent poverty. For developing countries with
lagging wel-fare systems in terms of healthcare and social insurance, the potential
10
long-term impact is particularly prominent. For the potentially infected, the
economic impact of the virus is concentrated in the short term, including direct and
indirect effects. Direct effects include the loss of economic income from short-term
absenteeism due to the need for isolation and the cost of protection to reduce the
likelihood of infec-tion. Indirect effects mainly come from the potential infection risk
that will change individuals’ travel and consumption behavior, reduce individual
welfares, and eventu-ally reflect in the impact on different industries and the whole
economy. For the non-infected, the economic impact of the virus is mainly indirect.
On the one hand, reduced consumer demand might be derived from national or
local policies like traffic control or purchase restriction of epidemic prevention
products. On the other hand, the non-infected may take excessive self-protection
measures due to the panic of the epidemic, such as unnecessary home quarantine,
which has a severe negative impact on the service sector.
The focus of economic impact assessment on individuals is deciding how to
define the opportunity cost of reasonable prevention and control behavior. An
epidemic inevitably leads to a decline in non-medical consumption and a change in
travel behavior, reducing individual welfare and sacrificing economic growth.
However, if individuals do not respond to outbreak, it may increase the risk of
individual infection and the transmission rate of the virus, thus the risk of long-term
economic loss. Clearly a key issue is not so much the absolute economic loss to the
individual, but the right balance between economic loss and outbreak control when
facing an epidemic.
As an individual preference is difficult to change in a short period of time, a ration-
ality of an individual protective behavior mainly depends on the adequacy and
4 B. GONG ET AL.

11
authenticity of the information she or he receives. Fast et al. indicates that the pub-lic
response to epidemics is mainly influenced by three factors: the perceived risk of the
12
disease, the transmissibility of the virus, and media transmission. Dickmann finds that
the more the public knows about virus-related information, the more helpful it is to
reduce the panic induced by the virus. On the one hand, when the media make
exaggerated or conflicting reports on the virus, it will lead to public panic, thus affect-ing
normal social and economic operations. On the other hand, if the media underesti-mate
the virus, it will lead to a lack of public awareness and lower virus protection, resulting in
13
more infection and damage caused by the epidemics. Fenichel et al. used 1.7 million
points of flight travel data, showing that the outbreak of 2009 H1N1 significantly changed
individual travel behavior and caused economic losses of about $50 million. Compared
to official institutions such as WHO, the media tends to over-estimate the severity of the
14
epidemic. However, as the main source to learn about epidemic information, media
15
like Google leads to excessive interventions at the indi-vidual level. Garnaut and Song
argued that the lack of transparency and accuracy of information was the main reason
why the government failed in the early prevention and control of the SARS outbreak in
Beijing, Guangdong and other regions, which led to the spread of the epidemic. The
outbreak of COVID-19 in Wuhan is another example. Since the government didn’t paid
enough attention in the early stage, many parties and activities were still conducted in
January 2020, which may be one of the reasons that dramatically improve the number of
infected people since then.

2.2. Economic impact at the firm level

An epidemic affects firms from two aspects, production and investment activities. In
terms of production activities, on the one hand, the outbreak may lead to
absenteeism caused by the virus infection of employees and preventive
absenteeism caused by potential infection risk, thus decreasing the labor force and
labor productivity, and affecting the profitability of firms, especially labor-intensive
firms. On the other hand, in order to deal with the potential risk of viral transmission,
firms will spend additional costs for prevention and control, which will increase the
overall operating costs and reduce profits. Moreover, epidemics also affect
16
agriculture at the farm-level. Audibert et al. found that productivity at the farm-level
decreased during a malaria outbreak using a non-parametric method. However, as
the input-output table of farms or enter-prises in the existing database is mainly
collected on a yearly basis, it is difficult to trace the production data during the
epidemic period, which may last for several months. In particular, enterprises’ own
input and local epidemic prevention and con-trol effects largely determine the extent
and duration of the impact of an epidemic on firm-level productivity. Due to different
locations, the affected degree of each firm is different, and thus the time period of
the epidemic is difficult to be compared hori-zontally. The main obstacle to
empirically measuring the impact of epidemics on firm-level productivity is the
difficulty of data matching, which makes it difficult to accur-ately assess the impact if
we cannot collect exact firm level data before, during and after an epidemic.
 JOURNAL OF CHINESE GOVERNANCE 5

The impact of the epidemic on investment activities mainly depends on firms’

expectations of local prevention and control measures as well as their risk preference.
The impact can be greater and last longer for developing countries that face difficul-ties
in prevention and control and rely more on foreign direct investment (FDI). Let’s take the
2003 SARS outbreak in China and the 2014–2016 Ebola outbreak in three west African
countries as examples. The Chinese government decided to set up a command center
for the prevention and treatment of SARS on April 23, 2003, after which the epidemic
was gradually controlled. Although SARS reduced the investment confidence of foreign
investors in China in the short term, it did not result in a mas-sive exodus of foreign
investors and capital outflows. Compared to China’s example, with limited national
capacity and prevention and control measures, investors’ lack of confidence in the
recovery of the epidemic led to the large-scale withdrawal of foreign investment in the
three west African countries during the 2014–2016 Ebola outbreak. An epidemic not only
causes a negative impact to the economy in the short run, but also affects the ability of
economic recovery in the long run.

3. Economic impact at the sector level

The impact of epidemics varies across sectors due to the characteristics of different
sectors. Compared with individuals and firms, it is more feasible for the government
to formulate prevention and control measures, as well as economic recovery
policies, at the sector level. From the perspective of the three main sectors, this
section consid-ers the industrial impact caused by SARS, H1N1 and Ebola in the
21st century as examples to summarize the impact at the sector level.

3.1. Economic impact on primary sector

The impact of epidemics on primary sector is mainly reflected in agricultural produc-
tion, logistics and international trade. Firstly, the impact of an outbreak on
agricultural production mainly lies in the shortage of labor force and other production
factors. The labor shortage caused by absenteeism may delay farming and
ultimately reduce agri-cultural productivity. For example, the decrease in labor input
at the early stages of the Ebola outbreak in 2014, especially the reduction of the
harvest team, led to a 20% drop in rice production and a 50% drop in coffee
production in Ghana compared with 2013, which not only caused a food crisis at the
17
national level, but also greatly affected farmers’ income.
Second, there are two major impacts of an epidemic on agricultural logistics. On the
one hand, transportation obstruction due to prevention and control measures affect
agricultural logistics, especially for fresh products that are not easy to store. On the other
hand, since sudden infectious diseases are usually transmitted to humans through
animal-to-animal hosts, the demand for related products may drop sharply in the short
term. In the case of the 2009 H1N1 outbreak, which was originally named “Swine Flu”,
consumers developed a negative association between pork and the virus. A survey of
18
1,200 Chinese consumers by the United States Meat Export Federation (USMEF) in
August 2009 showed that 64% of the consumers stopped buying pork in
6 B. GONG ET AL.

the early stages of the H1N1 outbreak, and 20% of the consumers thought they
could catch the virus from eating pork. Although the WHO changed the name from
“swine flu” to “2009H1N1” in May 2009, the continued use of “Swine Flu” in the
media had a negative impact on pork futures prices for about four months, resulting
in an approxi-mate $200 million revenue loss in the pork market from April to
September 2009 in the United States. According to the United States Trade
19
Representative (USTR), the U.S. pork industry experienced losses of about $270
million in the second quarter of 2009 alone.
Third, the impact of epidemics on the international trade of agricultural products is
derived from the relevant trade restrictions by trade partners for the prevention and
control of the epidemic. As a result, the demand for agricultural products imported
from the affected areas declines in the international market. For example, due to the
2009 H1N1 outbreak, pork imports to Russia and China fell 28% and 56%,
respectively, as compared to those of 2008. Another example is Libya during the
2014 Ebola out-break, where exports of natural rubber, a major agricultural product,
20
decreased by 40% compared with that of the previous year.

3.2. Economic impact on secondary sector

The impact of an epidemic on secondary sector mainly occurred in the manufacturing
sector. For different sub-sectors in the manufacturing sector, the impact of the epi-demic
is heterogeneous due to the different demand and supply shocks suffered by each sub-
sectors. A large number of empirical studies have measured the impact of the epidemic
on the listed companies, since their stock prices are easier to collect and are good
21
indicators of their operational conditions. Chen et al. used the stock data of listed
companies in Taiwan and found that the stock price of biotechnology rose due to the
increased demand for masks (such as N95) and products related to nano-technology
and photocatalysts (such as fluorescent lamps) during the SARS period. However, due
to the decrease in public travel, stock prices within the hotel industry dropped
significantly during the same period, reflecting the heterogeneity of the impact on
22
different sectors. Siu and Wong studied the re-export performance of Hong Kong
during the SARS outbreak. Their results show that Hong Kong’s economy is highly
related to re-exports, and the performance of re-exports depends largely on mainland
China’s manufacturers. As factories in the Pearl River delta did not stop pro-ducing, the
total value of Hong Kong’s exports increased by 17.6% and 12.2% in the first and
second quarters of 2003, respectively, as compared with the same period last year.
Most of these factories are owned by Hong Kong manufacturing companies, and they
provided hotels for their employees to live. This arrangement was intended to help
isolate workers from the SARS infected in nearby communities, which may be one of the
reasons that guaranteed increased exports during the SARS period.
The impact of epidemics on the manufacturing sector mainly depends on the
effectiveness of prevention and control measures, which determines the extent and
duration of the impact. When the epidemic prevention and control measures are
23
effective, the impact on the manufacturing sector is small and short. Beutels et al.
thought that, although the impact on manufacturing was negative, there might be an
 JOURNAL OF CHINESE GOVERNANCE 7

economic recovery after the end of the outbreak. For example, workers could put in
overtime to make up for their earlier absence, and consumers may delay their con-
sumption until after the outbreak. Such behaviors can drive the overall recovery of
the industry from both the supply and demand sides.

3.3. Economic impact on tertiary sector

The major epidemic impact of on tertiary sector is the demand-side impact caused
by the outbreak itself, as well as the prevention and control policies. On the one
hand, the epidemic can induce public preventive behaviors, such as reduced travel
and vol-untary isolation. On the other hand, the government introduces a series of
prevention and control measures, requiring the closure of the service industry with
intensive per-sonnel contact and a mandatory quarantine. Both strategies will lead
to a sharp drop in consumer demand, particularly for tourism, restaurants and the
24
retail industry. Beutels et al. showed that entertainment consumption,
transportation and tourism in Beijing were severely affected during the SARS
epidemic. The economic loss to Beijing’s tourism industry exceeded $1.4 billion,
about 300 times the medical cost of the SARS cases in Beijing. According to the
APEC report in 2004, the number of inbound tourists to Hong Kong dropped by 10%
in March, 65% in April, and 68% in May, respectively, in 2003, as compared with the
same period in 2002. The decline in the number of travelers directly affected tourism
and the airline industry. The volume of passenger traffic in Hong Kong’s two airline
companies fell by about 70% in April and a further drop about 80% in May during
the SARS period. Hotels, retail establish-ments and restaurants had also been hit
hard, with hotel room occupancy falling to 22% in April and 18% in May, compared
25
with more than 80% occupancy under nor-mal conditions. Khan et al. found a very
strong correlation between the destinations of tourists from Mexico and countries
with confirmed H1N1 cases. After the announce-ment of the H1N1 influenza
pandemic in Mexico, the number of visitors to the country fell sharply, losing nearly
26
1 million overseas visitors and causing an estimated loss of $2.8 billion.
Compared with the secondary sector, the impact of epidemics on the tertiary sector is
more influenced by the duration of the outbreak and relevant prevention and con-trol
27
policies. Chen et al. found that 35% of the overall GDP decline in Taiwan came from a
loss of tourism during the SARS period. Given that the outbreak brings about a sharp
decline in both demand and income, the tertiary sector, such as tourism, faces with the
risk of capital chain rupture, and this risk increases with an extension of out-break
28
duration. Du et al. showed that the annual retail sales of catering in Guangzhou
dropped by 4.86% in 2003 compared with 2002. For regions where tertiary sector
contributes a high share of GDP, a large number of enterprises will exit the market,
affecting the medium—and long-term government fiscal revenue, regional economic
growth and labor market if no effective control measures are introduced. The APEC
29
report in 2004 on Hong Kong’s economic development during SARS indi-cated that
the negative impact on the retail, restaurant and service industries exacer-bated
unemployment, which remained high at 8.7% as of July 2003. Therefore, in order to
minimize the negative effect on the tertiary sector due to epidemics,
8 B. GONG ET AL.

preferential policies should be applied in the tertiary sector at different levels. In

add-ition, reasonable and effective prevention and control measures must be
introduced to shorten the duration of the outbreak.

4. Economic impact at the macro level

4.1. Long-term and short-term effects
Before 1932, the scientific prevention and control of sudden epidemics progressed
30
slowly because laboratories were not capable of isolating virus strains. Smallpox,
plague and cholera killed millions of lives, changing human history and world
31
civiliza-tion. Voigtl€ander and Voth showed that the Black Death in medieval
Europe caused a sharp decline of population in a short period and changed the
population structure of Europe in the long term, which acted as an important
32
external factor promoting capitalism and urbanization in Europe. Ambrus et al.
studied the long-term effects of cholera in London in the 1850s. The outbreak
caused more than 600 deaths in the short term, with a mortality rate of 12.8% in the
region, whereas the long-term impact was mainly due to changes in the distribution
33
of urban poverty and housing prices. Douglas took the 1918 Spanish influenza
pandemic as a quasi-natural experiment to test the fetal origin hypothesis by
comparing the performance of people born during the outbreak with those born at
other times. The empirical results showed that the population born during the
epidemic period had lower education, health and income level, which to some
extent proved the impact of the epidemic on long-term human capital accumulation.
Through technological progress and better prevention and control capabilities, it
is less likely for epidemics to cause a major demographic shift in the region, with a
lim-ited impact on the long-term potential for economic growth. In the case of SARS,
China’s GDP grew by 6.7% in the second quarter of 2003, down 3.2% from the first
quarter and the slowest since 1992. However, for the whole year, the GDP growth
34
rate from 2001 to 2003 was 8.3%, 9.1% and 10%, respectively, indicating that
after the epidemic ended in the second quarter, the macro economy rebounded
rapidly in the third and fourth quarters, which did not affect the achievement of the
annual eco-nomic growth target.
However, the magnitude of the short-term impact of epidemics is closely related to
the overall industrial structure and local epidemic prevention and control capabilities.
From the perspective of industrial structure, the epidemic may cause a greater short-
term impact for countries and regions dominated by service industries. Garnaut and
35
Song found that the travel fear during SARS led to a sharp decline in consumer
demand, especially for tourism and the retail industry, which had a greater negative
impact on cities where tertiary industries account for a large share of GDP, such as
Beijing and Hong Kong. From the perspective of prevention and control capability, after
the outbreak of the Ebola virus, the three west African countries were unable to recover
their economies in a short period because of the poor medical infrastructure and
inadequate government capacity. According to a World Bank report, in the short term,
the 2014 Ebola outbreak reduced Guinea’s GDP growth by 2.1% (from 4.5% to 2.4%),
Libya’s by 3.4% (from 5.9% to 2.5%), and Sierra Leone’s by 3.3% (from 11.3% to
 JOURNAL OF CHINESE GOVERNANCE 9

8.0%). The total loss of GDP in the three west African countries was about $359
36
million (in 2014 prices). Although the outbreak was nearly under control a year
after it began, the negative impact on the three economies continued. The
estimated GDP loss for the three in 2015 was $2.2 billion ($240 million for Liberia,
37
$535 million for Guinea and $1.4 billion for Sierra Leone).

4.2. Regional spillover effects

Epidemics have a strong regional negative externality, which includes both the increase
in the number of virus infections and the negative spillover effects at the eco-nomic
level. During the Ebola outbreak, the spread of Ebola in Africa was limited, excepting for
the three west African countries, with a small number of cases in Nigeria (20 cases),
38
Mali (8 cases) and Senegal (1 case), all of which were quickly controlled. However, the
economies of Sub-Saharan Africa as a whole suffered from weakening consumer and
investor confidence, as well as the disruption of tourism and cross-bor-der trade.
39
According to the World Bank report, in addition to the three countries dir-ectly affected
by the Ebola virus, the cumulative losses of other countries in 2015 exceeded $500
million. Taking tourism as an example, the Ebola outbreak has led to a large number of
cancellations by international tourists to Africa, even though this epi-demic in most
African countries has not been severe or even confirmed a single case. This trend is
similar to the SARS outbreak in 2003. The Asian Development Bank (ADB) in early May
40
2003 estimated that GDP growth in east and southeast Asia reduced by 0.2% to 1.8%.
The tourism, catering, hotel, retail and other industries in the whole of Asia were
negatively impacted during the SARS period.

5. Economic assessment of prevention and control measures

From the above review it is clear that the magnitude of the impacts of the epidemic
hinges on vulnerability, risk preference, and control measures taken. Measures taken
are probably the most critical sector during the whole epidemic process. The chal-lenge
of effective epidemic control is to achieve a balance between viral transmission
reduction and economic cost. In addition to the effectiveness of virus control, the eco-
nomic assessment of prevention and control measures consider the economic loss
caused by excessive prevention and control measures. This section discusses the
classi-fication of prevention and control measures and presents the common economic
evaluation methods to assess the costs and benefits of various measures.

5.1. Classification of prevention and control measures

41
Pike et al. divided the prevention and control measures into adaptive measures and
eradication measures to deal with an influenza pandemic. Adaptive measures are
actions taken after an epidemic to reduce the impact, while eradication measures aim to
eliminate the outbreak source. According to WHO classification, prevention and control
measures are divided into drug and non-drug control. Drug control includes the
development of vaccines and antiviral drugs, as well as the discovery and
10 B. GONG ET AL.

treatment of infected people, while non-drug control is based on public prevention and
control measures, including personal and community protection, isolation and
42 43
quarantine, as well as travel and trade restrictions. Ferguson et al. thought that
influenza pandemic control should contain the elimination of social gathering activities to
reduce human contact, the implementation of quarantine policies to reduce the infectivity
of infected people, and the development of vaccines and antiviral drugs to reduce the
possibility of infection for uninfected people. Although some studies have proved that
antiviral drugs and vaccines can effectively prevent and control epidemics, it is difficult
for medical enterprises and scientific research institutions to provide those in the short
44
term, due to the strong concealment and fast mutation rate of the virus. For example,
during the 2009 H1N1 outbreak, the United States began vaccine devel-opment on the
sixth day after the first H1N1 virus was detected in April 2009, and the official public
45
order was accepted in December 2009.
46
According to WHO guidelines, countries affected by epidemics are advised to
implement measures such as school closures, family quarantines, adjustment of work
patterns, reduction of travel and public transportation, and restrictions on gatherings in
47
accordance with national plans and the severity of the epidemic. These measures are
regarded as key non-drug interventions and are often used as the main prevention and
48
control measures to deal with an early influenza pandemic. In the case of 2009 H1N1,
for example, the U.S. CDC initially recommended that schools with confirmed cases
should be closed for seven days to reduce the potential risk of infection based on the
H1NI outbreak in Mexico. However, as estimates of the severity of the virus decreased,
so did the recommendations. The early identification and isolation of sick students and
staff became a major way to reduce the spread of influenza in schools. In terms of
restricting international travel, due to the severe epidemic in Mexico, many airlines
reduced their frequency of flights to Mexico City or suspended flights for at least one
49
month, which resulted in the reduction of international traffic by about 40% in May.
During the 2003 SARS outbreak, the Chinese government took measures including
integrate medical resources and establishing the personnel tracking mechan-ism to
effectively control the epidemic. For the infected, fever clinics were set up to identify the
patients, and the patients were collected and treated in designated hospi-tals to prevent
cross-infection. For the potentially infected and non-infected, transpor-tation inspections
strengthened among civil aviation, railway, ship and coach to monitor the movement
path of personnel based on the large population mobility of China’s existing realities.

5.2. Cost and benefit analysis of prevention and control measures

The measures of government control depend on the incidence rate and fatality rate of
the epidemics, as well as the predicted economic loss. The first evaluation method for
prevention and control measures is based on the epidemiological model of viral trans-
mission and adopts SIR and its derived model to test the practical effects of different
public prevention and control measures through numerical simulation. The earliest SIR
model can be traced back to 1927, when Kermark and Mokendrick established the ori-
ginal SIR model to study the Black Death outbreak in London, where S stands for
 JOURNAL OF CHINESE GOVERNANCE 11

Susceptible, I for Infective, and R for Removed after being cured. Further studies
incor-porated the incubation period and virus infectivity into SIR model, which was
50
closer to the real scenario of infectious disease transmission. This method uses
the infection rate of the virus to evaluate the effectiveness of prevention and control
measures, but pays less attention to the economic and social costs. The existing
assessments of the actual epidemic prevention and control measures can be
divided into two groups, the evaluations of overall impact from all measures and the
evaluations of the impact from a single measure. In terms of the overall measure
51
effect evaluation, Ferguson et al. used data from the United States and the United
Kingdom to simulate the effectiveness of different public control measures in the
early stages of an outbreak. The results showed that immigration restrictions and
flight bans had a limited effect, while school closures had a significant effect at the
peak of the epidemic, but their impact throughout the whole epidemic period was
non-significant. More studies were conducted to evaluate the single measure effect.
52
Riley et al. found that the decrease in human contact represented by isolation and
the timely detection and treatment of infected people were the major reasons for the
decline in SARS transmission rate. As for the outbreak control effect of school
closures, many studies have concluded that school closures are beneficial to
outbreak control, mainly reflected in the decline of infection rates among school-age
people, and that this positive effect is not offset by the contact between students
53
and non-relatives during the school closure period. To demonstrate the necessity
54
of coordinating those prevention and control measures, Epstein et al. constructed
a global influenza pandemic model to simulate the effect of flight control on
epidemics. The results showed that if flight control policies were not combined with
other policies, the infection rate of influenza would increase, as the delayed travel
caused by flight restrictions might lead to a concentration of outbreaks.
The second evaluation method for prevention and control measures is the min-imum
cost accounting. When the government introduces public prevention and con-trol
measures, the prevention and control of viral transmission is not the only target, but also
the economic cost under different policies. A large number of cross-disciplin-ary studies
combine viral transmission models and macroeconomic models to calculate the cost
under different control combinations by taking economic loss into account when
evaluating the actual effect, including the implementation cost and the decline in
productivity caused by non-drug control, such as isolation, as well as the cost of death,
55
disability and treatment caused by infection. Such assessment methods could
calculate the cost per case and the number of infections avoided under prevention and
56
control. Bartsch et al. used the Monte Carlo simulation model to estimate the cost of
Ebola cases in the three most affected countries from a provider and social perspective.
The four specific cases include: 1) survivors receiving supportive care; 2) patients who
died after receiving supportive care; 3) survivors receiving extensive sup-portive care;
and 4) patients who died after receiving extensive supportive care. The results showed
that the total social cost for fully recovered Ebola cases ranged from $480 to $912 per
capita, while non-surviving Ebola cases ranged from $5,929 to $18,929 per capita,
varying by age and country. The main reason for the cost per case is mortality and the
resulting loss of productivity. This model also estimated that
12 B. GONG ET AL.

Liberia alone spent between $143–155 million on the outbreak, more than three times
57
the country’s total annual health budget ($49 million from 2011 to 2012). Adda et al.
used high-frequency data of a long time period, combined econometric exogenous
shocks with viral transmission models and selected public transport strikes and school
closures as natural experiments to measure the impact of different control policies on
viral transmission as well as the economic losses caused by control measures using
58
simulation methods. The parameter estimation of viral transmission in Adda et al. did
not rely on prior assumptions, and could therefore better evaluate the effect of single
measure on viral transmission. However, there are also disadvantages of that research.
On the one hand, the utilization of long-term data means that it is more focused on
general flu, rather than infectious diseases like SARS and Ebola. On the other hand, the
actual prevention and control is usually multi-channel, while the single measure effect
ignores the spillover effects between prevention and control measures.
The third evaluation method for prevention and control measures is to consider
the individual’s response strategy based on the minimum cost accounting. In the
59
review article published in Nature, Ferguson pointed out that most prediction
models for viral transmission ignored the human response to the virus, which would
60
lead to serious prediction bias in this connected society. Jonas showed that
individual response strategies to a virus affected the cost and benefit of pre-vention
and control measures in two aspects. One aspect is that an individual’s response to
the virus would affect how quickly it spreads. The other aspect is that individual
61
behaviors might carry higher costs. Yoo et al. found that after the 2009 H1N1
outbreak, public adaptive behavior was conducive to reducing viral transmission,
62
especially in the early stage of the outbreak. Fast et al. thought that the public’s
adaptive behavior would bring pressure on medical security, eco-nomic loss and
even increased violence. The mix of prevention and control meas-ures would
change significantly when the costs of public adaptive behavior were taken into
63
account. Thomas et al. calculated the economic losses of the Ebola epidemic in
the three west African countries, where the economic losses caused by the
preventive actions of the public and international investors reached $1.6 billion.
Therefore, considering the effectiveness of prevention and control measures, it is
necessary to explore the individual response strategies of epidemics.
In conclusion, the first evaluation method merely considers the prevention effects of
control measures, but ignores the huge economic losses. The second method con-siders
the potential economic costs, but ignores the economic impact of individual responses to
the epidemic. On the one hand, the lack of individual self-protection might lead to the
increased cost of public prevention and control measures. On the other hand, excessive
epidemic prevention would bring additional economic losses. For example, during the 2003
SARS outbreak, there was hoarding of epidemic-related goods at home, such as masks and
disinfectants, resulting in the misallocation and waste of public resources. Moreover, overly
strict home quarantine measures for non-infected people would have an even greater
negative impact on the affected service industry, such as restaurants, hotels and tourism.
Therefore, when evaluating the cost and benefit of the measure combination, it is
recommended to define different levels of prevention and control intensity. On this basis,
the cost and benefit of different
 JOURNAL OF CHINESE GOVERNANCE 13

combinations of measures are further calculated to optimize the decision-mak-ing

process.

6. Concluding remarks and recommendations

The above review discusses the economic impact of the epidemics from different
per-spectives, the mechanism through which epidemics affect the economy, and the
bal-ance between epidemic control and economic loss. Determining how to reduce
the social and economic risks of epidemics is crucial for governments and
international organizations. Scientific control of outbreaks requires a balance
between effectiveness and economic costs. Through summarizing the prevention
and control process of SARS, H1N1 and Ebola, it is found that infectious epidemics,
especially unknown and emergent outbreaks are different from other diseases
outbreaks. The main economic impact does not come from the deaths, the
sickness, and the time caring for the ill. Instead, fear, stigma and discrimination are
the major drivers of economic impacts. To have a balance act in fighting against the
epidemic, accurate and transparent disclos-ure of information plays a critical role.
The importance of information for epidemic prevention and control lies in three
aspects: the collection, processing and dissemin-ation of epidemic information. We
focus on these three aspects and put forward three major recommendations for a
balance act to minimize adverse economic impacts while containing the spread of
COVID-19.
Firstly, a timely collection of epidemic information is key. The effectiveness of
epidemic prevention and control mainly depends on the stage of viral transmission
when policies are introduced. Information collection is the basis of formulating scien-
tific prevention and control policies, which requires a state of art hardware
technology and the perfection of internal systems. The national public health
information system of the United States carries out comprehensive monitoring of
emergent epidemics, which plays an important role in information collection and
64
timely warning. Since the 2003 SARS outbreak, the Chinese government has
increased long-term investment in epidemic surveillance systems, building a
national-level direct report system and improving hardware technology. In practice,
the efficiency and accuracy of this surveil-lance system of the epidemic are still low
and cannot be verified because of the con-fusion of power and responsibility
between local governments and functional departments. Therefore, it is necessary
to clearly define the functions of the epidemic information monitoring department so
as to give full play to the value of the direct report system.
Secondly, a science-based comprehensive approach to process epidemic infor-
mation is a must. Traditional epidemic information processing includes the analysis of
virus characteristics based on biomedicine and the analysis of viral transmission based
on epidemiology. The analysis of virus characteristics provides scientific support for the
virus source discovery and for antiviral drug and vaccine development, while the
analysis of viral transmission provides evidence for judging the stage of epidemics and
predicting the future trends. Since the 2003 SARS outbreak, China’s biomedical
research capacity has made great progress. Compared with the viral characterization
analysis that took months during SARS, the time between the emergence of the first
14 B. GONG ET AL.

confirmed case and the isolation of COVID-19 was shortened to less than a
65
month. Since effective prevention and control of epidemic is not the only target,
the eco-nomic cost needs to be considered. The combination of epidemiological
models and economic models by scholars in different fields can be beneficial to
realize the dual goals of containment of viral transmission and minimization of
economic losses. Meanwhile, cross-disciplinary epidemic studies mainly rely on
timely data disclosure, which is conducive to cross-border cooperation and
complementary advantages, thus improving epidemic information processing.
In addition to viral characterization analysis and economic impact assessment,
epi-demic information processing also requires the establishment of prevention and
con-trol policies of local governments with limited epidemic information. The general
goal of local governments is to achieve economic growth and maintain social
stability. At the early stage of the epidemic, with limited information, local
governments usually choose conservative prevention and control policies. After the
outbreak of an epi-demic, with the request of the superior government and publics,
the short-term goal of a local government is to reduce the number of local people
infected. As a result, excessive policies are likely to be adopted, which could bring
extensive disruptions to local economic operation. How to deal with public health
shocks is an important part of national governance modernization, which needs to
be improved from target man-agement and plan formulation. First, in terms of target
management, a zero occur-rence of public health events should be taken as one of
the assessment goals to encourage these local governments to pay enough
attention in the early stage. Second, it is crucial for the cooperation between local
governments and other func-tional departments, such as the National Health
Commission. Existing plans usually start from the perspective of one functional
department, lacking the comprehensive coordination of multiple departments. Due
to the difficulty in political coordination and unclear functional orientation, it is
challenging to combine local governance with professional capacity for prevention
and control. The government should clarify the functions of different departments
and reduce organizational costs in multi-depart-ment cooperation.
Thirdly, a rapid and authoritative dissemination of authentic epidemic infor-mation
is an assurance. The timely dissemination of authentic information about epi-demics
is an important component of effective prevention and control. On the one hand, in
the early stage of an epidemic, the lack of authentic information might make the
public ignore the epidemic, thus accelerating the large-scale outbreak and increas-
ing the subsequent costs. On the other hand, with the development of mass media,
when the government cannot provide effective and authentic information, a large
amount of false information can be generated and induce panic among the public,
causing economic losses even more severe than the damage from the virus itself.
The key to information dissemination lies in who can disclose the authentic infor-
mation and how to motivate relevant departments to report the authentic situation in a
timely manner. From virus emergence to virus strain isolation and virus characteris-tics
identification, the cost of prevention and control is relatively low in the early stages.
However, due to the lack of clear power and responsibility relationships, as well as a
performance target assessment mechanism for local governments and
 JOURNAL OF CHINESE GOVERNANCE 15

relevant departments, the final actions may deviate from the maximization of social
welfare, thus missing the best control time and greatly increasing the pressure for sub-
sequent prevention and control and thus economic costs. From the perspective of a
vertical system, the central government is the core of the emergency work, while local
governments have less autonomy in managing epidemic information. From the per-
spective of a horizontal system, the power and responsibility relationships between
institutions at the same level are not clear. When facing with emergent epidemics, from
the perspective of the timely transmission of authentic epidemic information, it is
necessary to further clarify the power and responsibility relationships between gov-
ernments at all levels and relevant functional departments to establish a scientific
emergency management system for public health events and realize the transform-ation
from institutional advantage to governance capabilities.

Notes
1. Lopez et al., “Global and Regional Burden of Disease,” 1747–1757.
2. Sands et al., “The Neglected Dimension of Global Security,” 1281–1287.
3. Johnson and Mueller, “Updating the Accounts,” 105–115; Jonas, Pandemic Risk.
4. Bloom et al., “Emerging Infectious Diseases,” 4055–4059.
5. Burns et al., Evaluating the Economic Consequences of Avian Influenza.
6. Fan et al., The Inclusive Cost of Pandemic Influenza.
7. Jonas, Pandemic Risk; See note 5 above.
8. Jonas, Pandemic Risk; See note 5 above.
9. See note 5 above.
10. See note 6 above.
11. Fast et al., “Cost-effective Control of Infectious Disease,” e0136059.
12. Dickmann, Plague–Pandemic–Panic.
13. Fenichel et al., “Skip the Trip,” e58249.
14. Towers et al., “Mass Media and the Contagion of Fear,” e58249.
15. Garnaut and Song, China: New Engine of World Growth.
16. Audibert et al., “Social and Health Determinants of the Efficiency,” 1705–1717.
17. Thomas et al., The Economic Impact of Ebola on Sub-Saharan Africa.
18. USMEF’s Survey Shows Reaction of Chinese Consumers to H1N1.2009: https://www.foodmarket.
com/News/A/702517/3O37B8UF13J7tdmR8hwG5TfwOg5Bm8Mxasz0NlsC9tN2AW5EYphg==/
USMEFs-Survey-Shows-Reaction-of-Chinese-Consumers-to-H1N1-
19. USTR: https://ustr.gov/index.php/about-us/policy-offices/press-office/press-releases/
2009/june
20. See note 17 above.
21. Chen et al., “The Positive and Negative Impacts of the SARS Outbreak,” 281–293.
22. Siu and Wong, “Economic Impact of SARS,” 62–83.
23. Beutels et al., “The Economic Impact of SARS in Beijing,” 85–91.
24. See note 21 above.
25. Khan et al., “Spread of a Novel Influenza A (H1N1) Virus,” 212–214.
26. Rassy and Smith, “The Economic Impact of H1N1,” 824–834.
27. See note 19 above.
28. Du et al., “The Social Burden of SARS,” 274–276.
29. APEC, “Commentaries & Analyses,” 261–267.
30. Potter, “A History of Influenza,” 572–579.
31. Voigtl€ander and Voth, “The Three Horsemen of Riches,” 774–811.
32. Ambrus et al., “Loss in the Time of Cholera,” 475–525.
33. Douglas, “Is the 1918 Influenza Pandemic Over?” 672–712.
16 B. GONG ET AL.

34. Data source: National Bureau of Statistics of China http://data.stats.gov.cn/index.htm

35. See note 15 above.
36. World Bank, The Economic Impact of the 2014 Ebola Epidemic.
37. World Bank, Update on the Economic Impact.
38. World Bank, The Economic Impact of Ebola on Sub-Saharan Africa.
39. See note 36 above.
40. See note 27 above.
41. Pike et al., “Economic Optimization of a Global Strategy,” 18519–18523.
42. WHO, WHO Checklist for Influenza Pandemic.
43. Ferguson et al., “Strategies for Containing an Emerging Influenza,” 209–214.
44. Ferguson et al., “Strategies for Mitigating an Influenza Pandemic,” 448–452.
45. Data source: https://www.cdc.gov/h1n1flu/cdcresponse.htm
46. Data source: https://www.who.int/influenza/resources/documents/pipguidance_2009_zh.
pdf?ua=1
47. WHO, Pandemic Influenza Preparedness and Response.
48. Markel et al., “Nonpharmaceutical Interventions Implemented by US Cities,” e432;
Bootsma and Ferguson, “The Effect of Public Health Measures,” 7588–7593; Yoo et al.,
Public Avoidance and the Epidemiology of Novel H1N1.
49. Perlroth et al., “Health Outcomes and Costs of Community,” 165–174.
50. Bjørnstad et al., “Dynamics of Measles Epidemics,” 169–184; Neal, “A Household Sir
Epidemic Model,” 489–501.
51. See note 42 above.
52. Riley et al., “Transmission Dynamics of the Etiological Agent,” 1961–1966.
53. Cauchemez et al., “Estimating the Impact of School Closure,” 750–754; Litvinova et al.,
“Reactive School Closure Weakens,” 13174–13181.
54. Epstein et al., “Controlling Pandemic Flu,” e401.
55. Bootsma and Ferguson, “The Effect of Public Health Measures,” 7588–7593; Halder et
al., “Cost-Effective Strategies for Mitigating,” e22087; Kelso et al., “Economic Analysis of
Pandemic Influenza,” 211.
56. Bartsch et al., “The Cost of an Ebola Case,” 4–9.
57. Adda et al., “Economic Activity and the Spread of Viral Diseases,” 891–941.
58. Kelso et al., “Economic Analysis of Pandemic Influenza,” 211.
59. Ferguson, “Capturing Human Behavior.” 733.
60. Jonas, Pandemic Risk.
61. Markel et al., “Nonpharmaceutical Interventions Implemented by US Cities,” e432.
62. See note 11 above.
63. See note 17 above.
64. Tan et al., “References and Enlightenments from the Public Health,” 1–6.
65. Wang et al., “A Novel Coronavirus Outbreak,” 470–473.

Disclosure statement
No potential conflict of interest was reported by the author(s).

Funding
This article is supported by the National Natural Science Foundation of China [71903172], the
Research Program for Humanities and Social Science Granted by Chinese Ministry of
Education [18YJC790034], Soft Science Research Program of Zhejiang Province
[2020C25020], and Academy of Social Governance, Zhejiang University.
 JOURNAL OF CHINESE GOVERNANCE 17

Notes on Contributors
Binlei Gong is a tenured associate professor at China Academy for Rural Development and
the School of Public Affairs, Zhejiang University.
Shurui Zhang is a PhD candidate at China Academy for Rural Development and the School
of Public Affairs, Zhejiang University.
Lingran Yuan is a PhD candidate at China Academy for Rural Development and the School
of Public Affairs, Zhejiang University.

Kevin Z. Chen is a chair professor at China Academy for Rural Development and the School
of Public Affairs, Zhejiang University, and Senior Research Fellow at International Food
Policy Research Institute. Kevin Z. Chen is the corresponding author (kzchen@zju.edu.cn).

ORCID
Binlei Gong http://orcid.org/0000-0002-0615-9341

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