Contagion, Migration and Misallocation in a Pandemic

We present a multi-city migration model to study the endogenous choices of migration during a pandemic and evaluate various policy alternatives. Analytical solutions are provided under two situations: laissez-faire equilibrium and social optimum. We find that migration rates diverge under these two situations, especially for the infected people. We also provide a new empirical fact: countries with higher COVID-19 mortality disparity across sub-regions tend to have lower nationwide mortality rates. This new fact is inconsistent with the prediction of the traditional misallocation literature; nevertheless, it is aligned with our theoretical model, which can be seen as an extension of the misallocation framework with cross-region contagion and externality. This research can shed light on policy design under pandemic threat and also help to enrich the misallocation literature.