Blog 71: Costs and Benefits of Lockdown by Xavier Lo, FIA, FRM, MBA

Hong Kong is going into yet another phase of a lockdown [封鎖]. Although I use this term “lockdown” very loosely here, it is still worth discussing what the Costs [代價] and Benefits [利益] are of a Lockdown in dealing with the virus.

In a Cost Benefit Analysis [成本效益分析], we can start by considering the costs first. The most obvious downside of a lockdown is the reduced economic activity [經濟]. Restaurants and retail shops [餐廳零售業] can’t make as much money as before, footfall of shopping malls greatly drops and overall business activity is going to be much lower. There’s also the non-quantifiable but real impacts on people. For example, for all of you who have friends and family living far away from you, can a Zoom call replace having a drink with someone in a pub? How about someone who’s really sick and you want to see them for the last time? And the longer term mental effects [精神折磨] of being trapped between four walls?

However, there’s obviously good parts of a lockdown. Actually, thinking about it, the main benefit of a lockdown is actually reducing the number of deaths [減低死亡]. This is where actuaries may be able to give a bit of insight. By seeing decreased deaths as a benefit, it means that you implicitly have a number for someone’s life value [生命價值]. How much is this? And is it the same for everyone? I’m not going to talk about how we calculate this Value of a Statistical Life (I can cover this at a later time), but all I can say is that there is not one single number that everyone will agree on. As a side benefit, the lockdown has also changed the working environment. For example, more companies will be accepting of having at least a few days of working-from-home [在家工作] arrangements now that they’ve seen it can be practical.

So the conclusion? You can do a Cost Benefit Analysis for the lockdown, but because of the many assumptions, you won’t ever get an answer that will satisfy everyone. Hence lets leave this decision to the politicians!

Qualified fellow actuary (in UK and Hong Kong), Financial Risk Manager, and MBA graduate (listed on the Dean's List) with a passion for insurance, data science, and analytics. Experienced in a broad range of insurance roles (pricing, capital modelling, reserving, ERM), along with a touch of knowledge in banking. Member of the General Insurance Committee (2021), Actuarial Innovation Committee (2019 - 2021) in ASHK.

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