  We introduce a model of the diffusion of an epidemic with demographically
heterogeneous agents interacting socially on a spatially structured network.
Contagion-risk averse agents respond behaviorally to the diffusion of the
infections by limiting their social interactions. Firms also respond by
allowing employees to work remotely, depending on their productivity. The
spatial structure induces local herd immunities along socio-demographic
dimensions, which significantly affect the dynamics of infections. We study
several non-pharmaceutical interventions; e.g., i) lockdown rules, which set
thresholds on the spread of the infection for the closing and reopening of
economic activities; and ii) selective lockdowns, which restrict social
interactions by location (in the network) and by the demographic
characteristics of the agents. Substantiating a "Lucas critique" argument, we
assess the cost of naive discretionary policies ignoring agents and firms'
behavioral responses.
