Pandemics, Vaccines and an Earnings Damage Function

COVID-19's economic damage depends nonlinearly on a vaccine arrival rate and other forms of costly mitigation in the interim. We derive and estimate a parsimonious damage function using timely measures of expected damage given by revisions of industry-level earnings forecasts. We propose identifying restrictions related to forecast rationality that allow for estimation using nonlinear least squares. Forecast revisions in mid-May 2020 imply an earnings crash in excess of -50% and no earnings growth until a vaccine arrives, which is expected in 0.74 years. Similar estimates are obtained using a subsample of levered or face-to-face industries. We extend our framework to account for time-varying vaccine arrival rates and damages.