Spreading Like Wildfire: Economics and wildfire policy offer useful lessons for COVID-19 response.

• Author: Lueck, Dean
• Position: HEALTH & MEDICINE

The United States in 2020 has been scarred by an extreme wildfire season and a viral pandemic. Fires have ravaged the Southwest, the Rockies, the Pacific Northwest, and California since April. Over that period, 8.6 million acres have been scorched, nearly equivalent to New Jersey and Connecticut combined. California has been the hardest hit, with over 4 million acres burned, 9,200 buildings destroyed, and 31 people killed. Smoke filled the air over 10 states from late July to early September, blanketing cities such as Portland and Seattle and drifting to states in the Great Lakes and Mississippi Valley. Meantime, COVID-19 has been spreading across the country since March, infecting millions and killing hundreds of thousands of Americans, along with many others around the world.

Virus management is perplexing and tortuous. While markets are good at allocating resources to their highest-valued use under the right circumstances, economic activity and associated interpersonal activities in workplaces and shopping places have unintended and contagious consequences not always accounted for in our economic transactions or our regulatory decisions. The dominant response to COVID has been social distancing, sometimes enforced by governments with near draconian measures. Political decision-making and bureaucratic administration seem to dominate the pandemic response, and the consequences on labor and service markets dominated by in-person transactions have been extreme. The cost of social distancing is very high. The benefits may well be even higher, but at this point they are wildly uncertain.

ECONOMIC INSIGHTS

The basic benefit-cost calculation for COVID policy is simple: the benefits are the value of the reduction in mortality and morbidity and the costs mostly accrue from lost economic activity. For example, if 1 million lives are saved and each life is valued at $10 million (using the value of a statistical life approach) and the costs are $8 trillion in lost gross domestic product, then the policy generates $2 trillion in net gains. Of course, there is great controversy over the key variables in this calculation: the number of lives saved by these policies, the value of a saved life, and the economic costs of social distancing policies.

The economic basis for decisions becomes even murkier when we ask and try to answer the how, how much, and which questions that inevitably arise in policy design and response. How much testing should be done and who should be tested when there are capacity constraints on testing? Should COVID response for primary and secondary education be different than from higher education? Should guidelines for behavioral response be recommended or mandatory for certain activities? When vaccines are available, should they be subsidized, and if so, by how much?

Despite those questions, the calculus is still conceptually simple: try to implement COVID response so that the incremental benefits of our chosen actions are at least as large as the opportunity costs of pursuing them. The problem is that in an emergency where uncertainties abound, this simple calculus can at best be applied as a provisional stopgap until the next surprise arises. Further, while there are good reasons for government involvement in resource allocation, coordinating action, and designing and enforcing rules even with the best intentions, there is a disconnect between the benefits and the costs of the decisions being made.

The fundamental economic idea--that important decisions are to be made so that incremental benefits and costs are equated--is seriously challenged during wildfires and pandemics because the incentives of those making decisions are not tightly linked to the full costs and benefits of their behavior. When thinking about the economics of wildfire and pandemics, where transaction costs are high and markets are limited or challenged, the insights of Nobel economics laureate Ronald Coase are fundamental. He recognized the reciprocal nature of harmful effects and drew upon the power of comparative institutional analysis for understanding the economics of organization. For fire and COVID, the reciprocal nature of the "problem," to use Coase's term, is vivid. Fires spread across neighboring properties if and only if each property has fuel to burn. Who should be liable for the damage from a fire, the owner of land from which the fire spread or the owner of neighboring land who kept it in a flammable state? Similarly, the virus spreads from person to person if and only if each person allows enough contact for the virus to transmit. For both fires and COVID, the simple Pigouvian tax approach is not workable because it is not clear what to tax, let alone how to enforce such a tax. Coase's broad consideration of alternative governance structures is a clear and valuable paradigm for understanding settings like fires and COVID. Various public policies, including forms of government regulation, come into consideration.

Insights from two other Nobel economics laureates who focused on governance and institutions--Elinor Ostrom and Oliver Williamson--are also valuable. Ostrom stressed the importance of private and local behavior in solving collective action problems, while Williamson expanded Coase's idea of transaction costs to examine how the costs of establishing, maintaining, and enforcing property rights and contracts shape alternative market and nonmarket systems of governance. Taken together, the insights from Coase, Ostrom, and Williamson provide an economic lens that illuminates more than the standard neoclassical model. They point to understanding a world with a complex mix of interdependent private and public responses across a mosaic of jurisdictions.

Economic punditry has proliferated during the pandemic. Comments tend to be either an elaboration of the high costs of social distancing, the appropriateness of government mask mandates, or a debate about the details of stimulus plans and recession dimensions. But the economic fundamentals of this pandemic are not unique. The metaphor of the virus spreading like wildfire may be cliche, but as wildfire historian Stephen Pyne recently noted, the similarities between infectious disease outbreaks and wildfire outbreaks suggest there are lessons to be learned from wildfire management about strategies to combat the coronavirus pandemic.

COLLECTIVE ACTION

A starting point is to think about purely private and local community responses to wildlife and COVID. The analogies are clear and offer insight into the institutions and organizations that govern fire and pandemics. For wildfire mitigation, private action can include building with fire resistant materials, maintaining defensible space around buildings in fire-prone areas, managing fuel on one's property, and keeping personal firefighting tools handy. For COVID mitigation, private actions can include staying at home, avoiding crowds, wearing masks, and using sanitary techniques as home. These private actions are routinely advised by both wildfire and public health agencies and...