Centralized and Decentralized Responses to COVID-19 in Federal Systems: US and EU Comparisons

Abstract

European Union and the United States have experienced some of the most sever outbreaks of Covid-19. Paper investigates the EU and US divisions of power and suggest that due to the relative advantages and disadvantages of centralized federal responses and decentralized state responses, actions seeking to limit the impact of Covid-19 on society need to reflect a “smart mix” of both centralized and decentralized responses to the pandemic. Centralized procurement and distribution of necessary medical goods can solve problems related to harmful competition between states to procure these goods and allows states to exercise buying power. Centralized responses to procurement and distribution may solve a problem of moral hazard which leads to the hoarding of necessary medical goods, which represents a cross border externality when other states within the federal system face a shortage of necessary medical goods. This also applies to the procurement of medical goods related to testing for CV. However, paper argues the use of these goods and implementation of testing programs may be best done through a decentralized process because localized authorities have an information advantage over centralized authorities. Decentralized responses may also be necessary to gather information about which form of public health intervention works best, given that there is uncertainty as to which approach is most efficient. States must weigh not only the benefits of implementing public health interventions, but also the costs of these interventions on society.

Keywords: Covid-19 pandemic, comparative law and economics, economics of federalism, federal systems, procurement

JEL Classification: C23, C26, C51, K42, O43