  We analyze the optimal control of disease prevention and treatment in a basic
SIS model. We develop a simple macroeconomic setup in which the social planner
determines how to optimally intervene, through income taxation, in order to
minimize the social cost, inclusive of infection and economic costs, of the
spread of an epidemic disease. The disease lowers economic production and thus
income by reducing the size of the labor force employed in productive
activities, tightening thus the economy's overall resources constraint. We
consider a framework in which the planner uses the collected tax revenue to
intervene in either prevention (aimed at reducing the rate of infection) or
treatment (aimed at increasing the speed of recovery). Both optimal prevention
and treatment policies allow the economy to achieve a disease-free equilibrium
in the long run but their associated costs are substantially different along
the transitional dynamic path. By quantifying the social costs associated with
prevention and treatment we determine which policy is most cost-effective under
different circumstances, showing that prevention (treatment) is desirable
whenever the infectivity rate is low (high).
