Pigovian Subsidies for home delivery in times of COVID-19

In times of COVID-19, there are negative externalities associated with in-store shopping since if one is infectious one might transmit the disease to others What is the optimal Pigovian subsidy for home delivery of food to internalize this externality? To address this question, we develop a model with three policy instruments: testing frequency, lockdown intensity, and a subsidy for home delivery of food First, we consider the case where the testing frequency is adjusted so as to keep the pandemic's reproduction rate fixed In this case, the value of the subsidy for home delivery is to allow for a reduction in the testing rate without affecting the reproduction number This substitution is plausible when the testing rate is chosen optimally Using illustrative calibrations for the US, we find in this case that the optimal ad valorem subsidy for home delivery of food is between 1 7% and 3 4% However, it might be more likely that the testing rate continues to be chosen at a suboptimal level In this case, reducing the reproduction rate of COVID-19 via subsidies for home delivery could cause a reduction in the expected lockdown intensity Even if only 10% of the reduction in the reproduction rate is offset via reduced lockdown intensity, an ad valorem subsidy of between 5 4% and 10 8% will be warranted on these grounds alone