Spatial heterogeneity and budget-constrained treatments in epidemic dynamics: An agent-based approach

Abstract The management of infectious diseases increasingly relies on innovative but costly pharmaceutical treatments, raising complex trade-offs between epidemiological containment, fiscal sustainability, and institutional coordination. We develop a spatially structured agent-based model in which decentralized health authorities allocate treatment under local budget constraints while infection spreads across a two-dimensional lattice through neighborhood spillovers. Within each location, treatment intensity is chosen endogenously, interacting with local GDP dynamics and pricing conditions. Simulation results reveal that purely decentralized optimization mitigates but does not reverse infection growth within policy-relevant horizons, generating persistent spatial heterogeneity in both epidemiological and economic outcomes. We then introduce bounded spatial policy interaction, showing that partial coordination substantially improves containment but may increase the persistence of fiscal engagement. Extending the model to heterogeneous and time-varying pricing, we find that price discrimination amplifies medium-run infection and fiscal pressure under decentralization. However, when surplus revenues finance endogenous R&D, treatment efficacy improves over time, generating a feedback mechanism in which innovation mitigates long-run epidemiological and economic losses. Our findings highlight the critical interplay between spatial structure, decentralized decision-making, pricing design, and innovation incentives in shaping epidemic outcomes. Effective management of high-cost treatments requires not only medical efficacy but also institutional coordination and carefully designed market mechanisms.