Contagion, migration, and misallocation in a pandemic

We study how individuals' migration decisions during a pandemic interact with the spatial allocation of hospital resources, characterizing both the laissez-faire equilibrium and the planner's allocation in closed form. Susceptible individuals leave high-infection cities while infected individuals move toward better-resourced ones, but these private decisions diverge from the planner's along two dimensions. First, the migration of infected agents toward susceptible-rich destinations raises transmission risk, a contagion externality the planner internalizes by restricting such flows. Second, the migration of infected agents toward better-resourced cities relieves hospital congestion at the epicenter, a congestion externality the planner internalizes by encouraging such flows. The two externalities work in opposite directions, and our comparative statics show when each dominates. The framework explains a cross-country pattern that standard misallocation theory cannot: during COVID-19, countries with greater regional dispersion in mortality tended to have lower aggregate mortality. This pattern arises naturally once contagion and endogenous mobility are added to a standard misallocation framework. More broadly, the analysis identifies a setting in which spatial dispersion can raise rather than reduce welfare, reversing the sign of the standard misallocation prescription.