Weighing Trade-Offs Between Public Health and Economic Benefit, New Research Shows Which Businesses Make Most Sense to Reopen

AUSTIN, Texas – With Texas’ seven-day average COVID-19 positivity rate trending downward since July 16, businesses that have been shuttered since June 26 are chomping at the bit. But in preparing for the next stage of reopening, Gov. Greg Abbott and state and local leaders must decide what kinds of businesses represent the best and worst trade-offs in terms of economic benefits and health risks.

To tackle that question, a new study from The University of Texas at Austin’s McCombs School of Business and MIT’s Sloan School of Management uses a variety of data on consumer and business activity, measuring 26 types of businesses by both their usefulness and risk. Vital forms of commerce that are relatively uncrowded fare the best in the study; less essential types of businesses that generate crowds perform worse.

The study may provide clarity moving forward for Abbott and other Texas leaders who have taken fire and been forced to back-peddle on some previous reopening decisions, said Avinash Collis, an assistant professor in the Department of Information, Risk, and Operations Management at the McCombs School and co-author on the paper with Seth G. Benzell, a postdoctoral associate at the MIT Initiative on the Digital Economy, and Christos Nicolaides, a digital fellow at the MIT Initiative on the Digital Economy. The paper, “Rationing Social Contact During the COVID-19 Pandemic: Transmission Risk and Social Benefits of U.S. Location,” appears in Proceedings of the National Academy of Sciences.

“Texas started a phased reopening in May, with sit-down restaurants and bars, movie theaters, museums and malls permitted to reopen at reduced capacities, but there was no reasoning provided regarding why certain locations were reopened first and others remained closed,” Collis said. “Then when the number of COVID-19 cases surged statewide, many of these locations were ordered to close again.”

On July 27, about 800 Texas bar owners opened for “Freedom Fest,” an event protesting Abbott’s June 26 order that re-closed bars after opening them in early May. Abbott said he regretted ever allowing bars to reopen after his April stay-at-home orders expired, citing crowded bars as one reason for a sharp spike in COVID-19 cases.

“Policymakers have not been making clear explanations about how they are coming to their decisions,” Collis said. “That’s why we wanted to provide a more data-driven policy guide.”

Banks perform best in the study, being economically significant and relatively uncrowded, along with general merchandise stores such as Walmart and Target. These locations provide great economic and social value and typically have large spaces that limit crowding, say the researchers.

By contrast, other business types create much more crowding while having far less economic importance, the study shows. Liquor and tobacco stores, sporting goods stores, cafes, juice bars, dessert parlors and gyms all fall in the bottom half of the study’s rankings of economic importance, while, taken together, they rank third highest out of the 26 business types in risk.

Gyms are the fifth riskiest, according to the study’s metrics, which include cellphone location data revealing how crowded U.S. businesses get.

In many cases, the researchers say, policymakers have made reasonable decisions about what types of businesses should be open and closed. But there are notable exceptions, including liquor stores, which have been deemed “essential services” despite ranking 20th out of the 26 business types in economic importance but 12th highest in risk.

By contrast, colleges and universities have suffered a 60% decrease in visits, in part because of policies that assume these locations pose a health risk. But the study found they rank eighth out of the 26 business types in economic importance, and because most campuses offer large, open-air facilities and a consistent population of visitors, the health risk is minimal. If campus living arrangements could be made safer, the researchers think, the other parts of university life could offer relatively reasonable conditions.

To identify the trade-offs involved in opening different places, the researchers first needed to understand each location’s potential health risks and importance to consumers and the economy. To measure importance, they investigated how much consumers value being able to have access to the location, its levels of employment, the size of its payrolls, and the amount of revenue it collects.

They also constructed a measure of “cumulative danger”— the overall risk — of spreading or catching COVID-19 in 26 categories of places. To do so, they harnessed cellphone data to track the number of visits the business receives, the number of unique visitors it gets, the person-hours of attendance at different levels of crowdedness, and the median distance traveled to the destination, which provides an indication of how much geographic mixing takes place.

A key to the researchers’ approach is recognizing that during the pandemic, many consumers are trying to limit trips that generate interaction with strangers, while still needing to get essential and useful transactions done.

If the COVID-19 pandemic worsens again, the research can apply to shuttering businesses again, the researchers say.

While there is hope Texas is turning a corner with COVID-19, this study can steer policymakers around some of the bumps they encountered earlier this year, Collis said. “State leaders have been making these decisions in the dark, but in the fight against this pandemic, intuition alone isn’t good enough.”

For more information about this research, read the McCombs School of Business Big Ideas feature story or watch the video interview. 

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