Pandemic Lockdown: The Role of Government Commitment

Christian A. Moser, Pierre Yared

NBER Working Paper No. 27062
Issued in April 2020, Revised in May 2020
NBER Program(s):Economic Fluctuations and Growth, Health Economics, Political Economy

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.

Acknowledgments

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Document Object Identifier (DOI): 10.3386/w27062