Impact of Travel Bubbles: Cooperative Travel Arrangements in a Pandemic
Melbourne Institute Working Paper No. 10/21
Date: July 2021
Author(s):
Abstract
We develop a two-region Susceptible-Infected-Recovered-Macroeconomic model to evaluate the cooperative and non-cooperative cross-border travel arrangements during a pandemic. In a symmetric setting, the Pareto optimal is a cooperative travel arrangement that emphasizes exclusively on domestic containment. A non-cooperative game between social planners results in high travel restrictions with little benefit in economics or health. With asymmetric pandemic dynamics, a border closure on average results in less welfare loss than a noncooperative game, compared to cooperation. A border control allowing minimal essential travel only delays the outbreak in a region initially not infected. This can however be remedied by a timely vaccination plan. Under cooperation, pre-departure tests further enhance the welfare. Applying our model, we estimate that the Singapore { Hong Kong travel bubble is valued at US$635.1 per capita, and the Australia { New Zealand travel bubble is valued at US$307.8 per capita.