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!