Journal of Chinese Governance

ISSN: 2381-2346 (Print) 2381-2354 (Online) Journal homepage: https://www.tandfonline.com/loi/rgov20

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

Published online: 23 Mar 2020.

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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
Binlei Gonga , Shurui Zhanga, Lingran Yuana and Kevin Z. Chena,b
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 2020
cantly affected China and beyond. How to effectively control such Accepted 9 March 2020
epidemic has gradually become a global issue. This paper reviews
the economic impact of major epidemics such as SARS, H1N1, KEYWORDS
and Ebola at the micro-, sector-, and macro-level. The challenge Economic impact of
epidemics; control
of effective epidemic control is to achieve a balance between viral measures; public health
transmission reduction and economic cost. This paper then sum- events; information
marizes three main methods to evaluate the effectiveness of sev- disclosure; Novel
eral control policies. We also find that the adequacy and Coronavirus Pneumonia
authenticity of information disclosure is of great importance to
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
capital accumulation and economic growth.1 According to a study by the U.S. National
Academy of Sciences, global annual direct economic loss due to epidemics exceeds
$60 billion.2 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 GDP at that time.3 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
ß 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 accelerated the evolution
and spread of pathogens to some extent.4 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.
Based on a numerical simulation of the economic losses by Burns et al.,5 the GDP
loss caused by a medium global major epidemic may exceed $3.5 trillion. Fan et al.6
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 well as public prevention and control policies.7 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 spread.8
Taking the Spanish influenza pandemic as an example, among the estimated eco-
nomic losses of $3 trillion, 60% were indirect economic losses caused by prevention
and control measures.9 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 long-term
impact is particularly prominent.10 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.

authenticity of the information she or he receives. Fast et al.11 indicates that the pub-
lic response to epidemics is mainly influenced by three factors: the perceived risk of
the disease, the transmissibility of the virus, and media transmission. Dickmann12 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 more infection and damage caused by the epidemics. Fenichel et al.13
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 epidemic.14 However, as the main source to learn about
epidemic information, media like Google leads to excessive interventions at the indi-
vidual level. Garnaut and Song15 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 agriculture at the farm-level. Audibert
et al.16 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 national level, but also greatly
affected farmers’ income.17
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 1,200 Chinese consumers by the United States Meat Export Federation
(USMEF)18 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 Representative (USTR),19 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, decreased by
40% compared with that of the previous year.20

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 indicators of their operational conditions. Chen et al.21 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 different sectors. Siu and Wong22 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
effective, the impact on the manufacturing sector is small and short. Beutels et al.23
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 retail industry.
Beutels et al.24 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 with more than 80% occupancy under nor-
mal conditions. Khan et al.25 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 1 million overseas visitors and causing an estimated loss of
$2.8 billion.26
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 policies. Chen et al.27 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 duration. Du et al.28 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 report in 200429 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
slowly because laboratories were not capable of isolating virus strains.30 Smallpox,
plague and cholera killed millions of lives, changing human history and world civiliza-
tion. Voigtl€ander and Voth31 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 external factor promoting
capitalism and urbanization in Europe. Ambrus et al.32 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 of urban poverty and housing prices.
Douglas33 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 rate
from 2001 to 2003 was 8.3%, 9.1% and 10%, respectively,34 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
Song35 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 million
(in 2014 prices).36 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, $535 million for
Guinea and $1.4 billion for Sierra Leone).37

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), Mali (8 cases) and Senegal (1 case), all of which were quickly controlled.38
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. According to the World Bank report,39 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 2003 estimated that GDP growth in east and southeast Asia reduced by
0.2% to 1.8%.40 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

Pike et al.41 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
quarantine, as well as travel and trade restrictions.42 Ferguson et al.43 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 term, due to the strong concealment and fast mutation rate of the virus.44
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 order was accepted in December 2009.45
According to WHO guidelines,46 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 accordance with national plans and the severity of the epidemic.47 These measures
are regarded as key non-drug interventions and are often used as the main prevention
and control measures to deal with an early influenza pandemic.48 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 month, which resulted in the reduction of international traffic by about 40%
in May.49 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 closer to
the real scenario of infectious disease transmission.50 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 effect evaluation, Ferguson
et al.51 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. Riley et al.52 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 and non-relatives during the school closure period.53 To
demonstrate the necessity of coordinating those prevention and control measures,
Epstein et al.54 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, disability and treatment caused by infection.55 Such assessment methods could
calculate the cost per case and the number of infections avoided under prevention
and control. Bartsch et al.56 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
the country’s total annual health budget ($49 million from 2011 to 2012). Adda et al.57
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
simulation methods. The parameter estimation of viral transmission in Adda et al.58
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
review article published in Nature, Ferguson59 pointed out that most prediction
models for viral transmission ignored the human response to the virus, which
would lead to serious prediction bias in this connected society. Jonas60 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 behaviors might carry higher costs. Yoo et al.61 found that after the
2009 H1N1 outbreak, public adaptive behavior was conducive to reducing viral
transmission, especially in the early stage of the outbreak. Fast et al.62 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 account. Thomas et al.63 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 timely warning.64 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 month.65
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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