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Pandemic Lockdown: The Role of Government Commitment

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  • Moser, Christian
  • Yared, Pierre

Abstract

This note studies optimal lockdown policy in a model in which the government can limit a pandemic's impact via a lockdown at the cost of lower economic output. A government would like to commit to limit the extent of future lockdown in order to support more optimistic investor expectations in the present. However, such a commitment is not credible since investment decisions are sunk when the government makes the lockdown decision in the future. The commitment problem is more severe if lockdown is sufficiently effective at limiting disease spread or if the size of the susceptible population is sufficiently large. Credible rules that limit a government's ability to lock down the economy in the future can improve the efficiency of lockdown policy.

Suggested Citation

  • Moser, Christian & Yared, Pierre, 2020. "Pandemic Lockdown: The Role of Government Commitment," MPRA Paper 99804, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:99804
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    References listed on IDEAS

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    More about this item

    Keywords

    Coronavirus; COVID-19; SIR Model; Optimal Policy; Rules; Commitment; Flexibility;
    All these keywords.

    JEL classification:

    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • H12 - Public Economics - - Structure and Scope of Government - - - Crisis Management
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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