Abstract

This paper fully characterizes the optimal control of a recurrent infectious disease through the use of prevention and treatment. We find that under centralized decision making, treatment induces positive destabilizing feedback effects while prevention induces negative stabilizing feedback effects. Under decentralized decision making, these effects create strategic complementarities and substitutabilities, respectively. While treatment pushes prevalence towards the extremes, prevention pushes it towards interior solutions. As a result, the dynamic system may admit multiple steady states and the optimal policy may be path dependent. We find that the comparative statics of the model may radically differ across steady states, which has important policy implications. We find that steady state prevalence levels in decentralized equilibrium must be equal to or higher than the socially optimal levels. While steady state treatment levels under decentralization are typically socially optimal, steady state prevention (if used) is socially suboptimal.