Diffusion of Covid-19 in Social and Production Networks: Simulation Evidence from a Dynamic Model * Victor Aguirregabiria, Jiaying Gu, Yao Luo, and Pedro Mira May 4, 2021 Abstract This paper presents a dynamic model to evaluate economic and public health effects of the diffusion of COVID-19. Our framework combines a SIR epidemiological model of virus diffusion with a dynamic game of network production and social interactions. The economy comprises three types of geographic locations: homes, workplaces, and consumption places. Each individual has her own set of locations where she develops her life. The combination of these sets for all the individuals determines the economy’s production and social network. Every day, individuals choose to work and consume either outside (with physical interaction with other people) or remotely (from home, without physical interactions). Working (and consuming) outside is more productive and generates stronger complementarities (positive externality). However, in the presence of a virus, working outside facilitates infection and the diffusion of the virus (negative externality). Individuals are forward-looking. We calibrate the model and implement numerical experiments to evaluate the health and economic impact of several counterfactual public policies: subsidies for working at home; testing policies; herd immunity; and changes in the network structure. These policies generate substantial differences in the propagation of the virus and its economic impact. Keywords: Covid-19; Virus diffusion; Dynamics; Production and social networks; Production externalities; Public health. JEL classifications: C57, C73, L14, L23, I18 Victor Aguirregabiria. University of Toronto and CEPR. Address: 150 St. George Street. Toronto, ON, M5S 3G7, Canada. E-mail: victor.aguirregabiria@utoronto.ca Jiaying Gu. University of Toronto. Address: 150 St. George Street. Toronto, ON, M5S 3G7, Canada. E-mail: jiaying.gu@utoronto.ca Yao Luo. University of Toronto. Address: 150 St. George Street. Toronto, ON, M5S 3G7, Canada. E-mail: yao.luo@utoronto.ca Pedro Mira. CEMFI. Casado del Alisal 5, 28014 Madrid, Spain. Email: mira@cemfi.es * We would like to thank comments from the Editor, two anonymous referees, Connor Campbell, Marc-Antoine Chatelain, Luca Flabbi, Donna Gilleskie, Andr´ es Hincapi´ e, Matt Mitchell, Adonis Yatchew, and from participants in seminars at University of North Carolina - Chapel Hill and University of Toronto.