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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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    2. Giorgio Fabbri & Salvatore Federico & Davide Fiaschi & Fausto Gozzi, 2024. "Mobility decisions, economic dynamics and epidemic," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 77(1), pages 495-531, February.
    3. V. V. Chari & Rishabh Kirpalani & Christopher Phelan, 2021. "The Hammer and the Scalpel: On the Economics of Indiscriminate versus Targeted Isolation Policies during Pandemics," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 42, pages 1-14, October.
    4. Chrys Esseau-Thomas & Omar Galarraga & Sherif Khalifa, 2022. "Epidemics, pandemics and income inequality," Health Economics Review, Springer, vol. 12(1), pages 1-15, December.
    5. Facundo Piguillem & Liyan Shi, 2022. "Optimal Covid-19 Quarantine and Testing Policies," The Economic Journal, Royal Economic Society, vol. 132(647), pages 2534-2562.
    6. Ascari, Guido & Colciago, Andrea & Silvestrini, Riccardo, 2023. "Business dynamism, sectoral reallocation and productivity in a pandemic," European Economic Review, Elsevier, vol. 156(C).
    7. Laura Alfaro & Ester Faia & Nora Lamersdorf & Farzad Saidi, 2020. "Social Interactions in Pandemics: Fear, Altruism, and Reciprocity," NBER Working Papers 27134, National Bureau of Economic Research, Inc.
    8. Fushi Wang & Weiwei Qiao & Fei Wang & Liuyan Meng, 2022. "Analysis of Online Consultations and Emergent Treatments of Operative Dentistry and Endodontics during the COVID-19 Epidemic," IJERPH, MDPI, vol. 19(4), pages 1-9, February.
    9. Kamal, Javed Bin & Wohar, Mark, 2023. "Heterogenous responses of stock markets to covid related news and sentiments: Evidence from the 1st year of pandemic," International Economics, Elsevier, vol. 173(C), pages 68-85.
    10. Martin Forster & Emanuela Randon, 2020. "Epidemic policy under uncertainty and information," Discussion Papers 20/05, Department of Economics, University of York.
    11. Laura Alfaro & Ester Faia & Nora Lamersdorf & Farzad Saidi, 2022. "Health Externalities and Policy: The Role of Social Preferences," Management Science, INFORMS, vol. 68(9), pages 6751-6761, September.
    12. Shin-ichi Fukuda, 2022. "Self-fulfilling Lockdowns in a Simple SIR-Macro Model," CIRJE F-Series CIRJE-F-1183, CIRJE, Faculty of Economics, University of Tokyo.
    13. Christian Bayer & Benjamin Born & Ralph Luetticke & Gernot J Müller, 2023. "The Coronavirus Stimulus Package: How Large is the Transfer Multiplier," The Economic Journal, Royal Economic Society, vol. 133(652), pages 1318-1347.
    14. Greg Kaplan & Benjamin Moll & Giovanni L. Violante, 2020. "The Great Lockdown and the Big Stimulus: Tracing the Pandemic Possibility Frontier for the U.S," NBER Working Papers 27794, National Bureau of Economic Research, Inc.
    15. David Baqaee & Emmanuel Farhi & Michael J. Mina & James H. Stock, 2020. "Reopening Scenarios," NBER Working Papers 27244, National Bureau of Economic Research, Inc.
    16. Hassan, Tarek & Hollander, Stephan & van Lent, Laurence & Schwedeler, Markus & Tahoun, Ahmed, 2020. "Firm-Level Exposure to Epidemic Diseases: Covid-19, SARS, and H1N1," CEPR Discussion Papers 14573, C.E.P.R. Discussion Papers.
    17. Alfaro, Laura & Faia, Ester & Lamersdorf, Nora & Saidi, Farzad, 2024. "Altruism, social interactions, and the course of a pandemic," European Economic Review, Elsevier, vol. 161(C).
    18. Cardani, Roberta & Croitorov, Olga & Giovannini, Massimo & Pfeiffer, Philipp & Ratto, Marco & Vogel, Lukas, 2022. "The euro area’s pandemic recession: A DSGE-based interpretation," Journal of Economic Dynamics and Control, Elsevier, vol. 143(C).
    19. Zouheir El‐Sahli & Mouyad Alsamara, 2023. "Resilience in the time of COVID‐19: Lessons learned from Middle East and North Africa small‐ and medium‐sized enterprises," The Developing Economies, Institute of Developing Economies, vol. 61(3), pages 181-231, September.
    20. Iyke, Bernard Njindan & Maheepala, M.M.J.D., 2022. "Conventional monetary policy, COVID-19, and stock markets in emerging economies," Pacific-Basin Finance Journal, Elsevier, vol. 76(C).
    21. Anundsen, André Kallåk & Kivedal, Bjørnar Karlsen & Røed Larsen, Erling & Thorsrud, Leif Anders, 2023. "Behavioral changes in the housing market before and after the Covid-19 lockdown," Journal of Housing Economics, Elsevier, vol. 59(PB).
    22. Acedański, Jan, 2021. "Optimal lockdown policy during the election period," Economic Analysis and Policy, Elsevier, vol. 72(C), pages 102-117.
    23. Christopher Cotton & Bahman Kashi & Huw Lloyd‐Ellis & Frederic Tremblay & Brett Crowley, 2022. "Quantifying the economic impacts of COVID‐19 policy responses on Canada's provinces in (almost) real time," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 55(S1), pages 406-445, February.
    24. Kholodilin, Konstantin A. & Rieth, Malte, 2023. "Viral shocks to the world economy," European Economic Review, Elsevier, vol. 158(C).
    25. George Kapetanios & Nora Neuteboom & Feiko Ritsema & Alexia Ventouri, 2022. "How did consumers react to the COVID‐19 pandemic over time?," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 84(5), pages 961-993, October.

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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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