Health

The Market Forces Behind Vaccine Passports – The Health Care Blog

By SAURABH JHA

Unlike medical meetings, rendering Beethoven’s Ninth Symphony isn’t easy on Zoom, so the local orchestra has been furloughed and their members work for Uber.  The opera house wants to reopen, preferably before we reach the elusive herd immunity threshold. They mandate vaccinations for their artists, not least because the performers can keep their masks off. Should they extend this requirement to their patrons?  

Vaccine passports, proof of immunity against SARS-CoV-2, to work, dine, fly or watch shows, are controversial. Opponents say they blithely disregard decency, are operationally onerous, and hurt liberty. Worryingly, they create a caste system, which wouldn’t be as concerning if based on just immunology. Such a two-tiered system could sadly mirror societal inequities because it’s the poor who may disproportionately be left unvaccinated. Supporters of vaccine passports further the very structural disadvantages they seek to end.

When arguments are too compelling they likely betray an obvious simplicity. Too often arguments against mandates assume they’d be a government fiat. The opponents recline on the country’s inherently liberal streak conjuring visions of rugged individuals fighting unelected bureaucrats. They say with undisguised pride “this isn’t who we are. We’re the US, not New Zealand. We can’t be controlled.”

This narrative is so tightly embedded in right-of-center discourse that it’s now folklore bordering on an Ayn Rand fairy tale. The narrative is nonsense. The state is too incompetent to either govern adeptly or tyrannize efficiently. Case-in-point: CDC’s easily forgeable paper vaccine certificate. If the state were serious about prying on people’s antibodies, it’d have made the immunosurveillance digital.

The obsession with big government should be antiquated. By censoring content, Facebook and Twitter showed that freedom can more efficiently be curtailed by the private sector. Bottom-up censorship is arguably more powerful than top-down censorship because it has buy-in from a segment of the market. It may very well be the private sector which demands vaccine passports, which begs two questions – why and why not?

The scientific arguments against vaccine passports are even more compelling than the deontological arguments. Vaccinations are nearly 100 % effective in stopping infections. The unvaccinated don’t endanger the vaccinated. The unvaccinated endanger only each other and they have a right to accept the mutual risk.

Yet, the opera house may ignore science. For starters, they’d be signaling a safe environment, and even if the safety is excessive, it might be necessary to arrest the inertia of their risk-averse patrons who, having avoided crowds for a year, may need more than science for reassurance. They’d also be signaling a commitment to vaccinations which, despite the hesitancy is some quarters, is now ingrained in public psyche as the path out of the pandemic. A private entity may signal collective virtue for selfish reasons. Adam Smith’s invisible hand works in mysterious ways.     

Even if the unvaccinated implicitly accept the risk of infecting each other, the opera house might not want to be the author of their viral destiny. If the viral spread is traced to the theater, even if the opera house can’t be sued, they’d get bad publicity. Market forces would encourage the establishment to be more prudent than science demanded.   

Couple weeks after receiving my second dose, I was walking to the grocery store in a state of immunological euphoria. In a flash of defiance to the spike protein, I took off my mask to salute my antibodies. A man walking his dog looking disapprovingly at me crossed the road. I wanted to shout “I have been vaccinated, you judgmental Puritan”. Instead of showing him the Kaplan-Meier curves of the Pfizer vaccine, I put my mask back on. I still wear a mask – to protect myself not from the virus, but the judgmentalism of strangers. The alternative is tattooing “I have been vaccinated” on my forehead, but I’m of a shy disposition.

The vaccinated are now hanging out together. After a year of seeing each other on Zoom, they now have dinner at each other’s houses. The mute option has gone. The masks are off.  They’re comfortable because they know they’re vaccinated. An unsaid vaccine honor system already exists. We don’t call it “vaccine passport.” We call it “mutual agreement.”

To understand how businesses might behave, we must understand their clientele and also their costs of obtaining information. All entities try reducing information costs. Discerning between different tiers of risk is costly for both an upscale French eatery and a hole-in-the-wall Schezuan restaurant. The former may enforce vaccine passports so that their affluent patrons feel relaxed sipping Côtes du Rhône wine. For the latter, requiring vaccine passports may drive away their, less affluent, customers.

As more of the more affluent get vaccinated, their urge to normalize will increase. However, this urge won’t rise smoothly. It’ll be preceded by extreme fear, as they’ll feel like they’re walking on landmines. In that inflexion between extreme fear and frontier spirit – which could last days or months – they may demand that the places they frequent mandate vaccine passports.  Upscale restaurants may oblige. Airlines, though not budget airlines, may also oblige. Vaccine passports will segment the more affluent segments of the market.   

Two underappreciated forces in affluent nations are fear and virtuosity, both plentiful here.  The corollary to feeling good about yourself for being vaccinated is wanting to distinguish yourself from the “reprobates” who aren’t. Compliance with masks can be signaled. Compliance with vaccinations, notwithstanding the vaccine selfies posted on Twitter, is more difficult conveying. Vaccine passports unmask our invisible immunology.

Of course, there are legitimate reasons not to be vaccinated. But markets aren’t good at discerning intent – the information costs are prohibitive. Markets may be more nuanced than central diktats but are still not nuanced enough for the heterogeneity of risk and preferences in society. This means we can’t assume that the unvaccinated have entered “I’ll let you infect me if you let me infect you” covenant.

As getting vaccinated gets easier, and more get vaccinated, the already low efficacy of vaccine passports will be even lower. But the zeal for vaccine passports will increase, precisely because getting vaccinated got easier. It’s easier for hotels to turn guests away at 60 % than 25 % occupancy. Why are passports mandatory for international travel, with no exception? Partly because they just are, and partly because anyone can get one.

The incredibly efficacious COVID-19 vaccines made masks redundant. Vaccine passports are the heir apparent to “throw your masks off”. They’ll exist because the vaccinated and unvaccinated are in different risk tiers. And the vaccinated will want their lives to be easier because they’ve been vaccinated.  

Since the start of the pandemic, we’ve tried making restrictions more risk based. We’ve quarantined international travelers, restricted travel from viral hotspots, such as India. The maxim of the operationally challenging “test, trace, and isolate” is keeping people who test positive away from people who test negative. It’s an odd deontology which concludes that it’s ok segregating society on the basis of “has virus” but not “does not have virus”, particularly as the latter is now more within one’s control – one couldn’t as easily have chosen not to be infected as one can now choose to get vaccinated.

No mandate should be judged on its own. It must be judged only in the context of other, more restrictive, mandates.  Weak restrictions create more freedom by displacing stronger restrictions. Presently, Americans require negative COVID-19 test before boarding flights back to the US. Whatever the merits of this restriction, it can make people fear being stranded in another country. Between having a blood test 48 hours before your flight and hoping it’s negative, and showing proof of vaccination, which would you choose? If you’re a frequent flyer would you choose a one-time certificate or a blood test every time you fly?

Across the political spectrum logical consistency has taken a flogging in this pandemic. For instance, consider the Great Barrington Declaration (GBD), which has widespread support amongst conservatives. GBD’s risk-based restriction, “focused protection”, uses the steep age gradient of COVID-19 mortality. Focused protection means we protect the elderly with vigor but not fret about the youth partying. How is keeping unvaccinated granny away from parties in crowded bars, pre-vaccine, categorically different from keeping unvaccinated granny away from the unvaccinated youth in an opera house?  

The scientists will scoff at my conflation. Not all risk heterogeneity is the same. And risk is diminishing – unvaccinated granny is safer now. Vaccinations have flattened the age-mortality-gradient.  My point is that vaccine passports are no more unique in the genre of risk-based restrictions than a Labrador is uniquely canine.

Will vaccine passports reduce faith in vaccinations? It’s certainly plausible that those who don’t want to be vaccinated will resent compulsion. But those at the margins may more likely get vaccinated if vaccinations makes their lives easier.

When individual preferences clash with groups preferences markets segment, which is why we have budget airlines. Vaccine passports may also be a consequence of such tension. They’re not the key to reopening the economy. Rather, they may be the result of their phased re-opening.  Removing the mask mandate will neuter vaccine passports. Vaccine passports will be redundant if the country normalizes today. But many places won’t normalize overnight, or at the same time, and as we creep towards normalization, businesses may use vaccine passports to create sanctuaries of pseudo-normal life, particularly for their employees.

Technocrats think about net benefits of policy, of effect sizes, of uncertainty. Markets aren’t concerned by the algebra of regression equations but governed by the concerns of the time. Perception of risk often lags actual risk. Perception is shaped by multiple entities, such as media, institutions, and television doctors. The closer we reach the end of the pandemic the more impatient markets will become to end the pandemic.

As we’ve been told, markets know best 😉

Saurabh Jha is a long-time contributor to THCB. He can be reached on Twitter @RogueRad

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