The second wave

Abstract What determines whether an epidemic unfolds in multiple waves? In the absence of a vaccine, populations remain vulnerable to future outbreaks as long as susceptibility levels stay above the herd immunity threshold. The effectiveness of mitigation policies is therefore critical: a highly effective lockdown can paradoxically increase the likelihood of a second wave. This paper uses a calibrated model to study both the decentralized equilibrium and the optimal policy in a scenario where mitigation is only moderately effective. The findings show that equilibrium and optimal mitigation strategies are qualitatively similar in this case. Fiscal costs decrease the optimal length of the lockdown, narrowing the gap between equilibrium and optimal policies. We also use the model to evaluate the welfare costs of deviating from the optimal policy.