Pandemic Lockdown: The Role of Government Commitment

Moser, Christian; Yared, Pierre

doi:10.2139/ssrn.3581412

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Pandemic Lockdown: The Role of Government Commitment

52 Pages Posted: 21 Apr 2020 Last revised: 2 Aug 2021

See all articles by Christian Moser

Christian Moser

Columbia University; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

Pierre Yared

Columbia University - Columbia Business School, Finance

There are 3 versions of this paper

Date Written: July 30, 2020

Abstract

This paper studies lockdown policy in a dynamic economy without government commitment. Lockdown imposes a cap on labor supply, which improves health prospects at the cost of economic output and consumption. A government would like to commit to the extent of future lockdowns in order to guarantee an economic outlook that supports efficient levels of investment into intermediate inputs. However, such a commitment is not credible, since investments are sunk at the time when the government chooses a lockdown. As a result, lockdown under lack of commitment deviates from the optimal policy. Rules that limit a government's lockdown discretion can improve social welfare, even in the presence of noncontractible information. Quantitatively, lack of commitment causes lockdown to be significantly more severe than is socially optimal. The output and consumption loss due to lack of commitment is greater for higher intermediate input shares, higher discount rates, higher values of life, higher disease transmission rates at and outside of work, and longer vaccine arrival times.

Note:
Funding Information: We have received no funding for this research, other than our regular employment at Columbia University (Moser and Yared) and the Federal Reserve Bank of Minneapolis (Moser)

Competing Interest Declaration: We have no competing interests to declare

Keywords: Coronavirus, COVID-19, SARS-CoV-2, SIRD Model, Optimal Policy, Pandemic Restrictions, Lockdown, Non-Pharmaceutical Interventions, Rules, Commitment, Flexibility

JEL Classification: E61, H12, I18

Suggested Citation: Suggested Citation

Moser, Christian and Yared, Pierre, Pandemic Lockdown: The Role of Government Commitment (July 30, 2020). Available at SSRN: https://ssrn.com/abstract=3581412 or http://dx.doi.org/10.2139/ssrn.3581412