Costs and Benefits of Closing Businesses in a Pandemic

41 Pages Posted: 13 May 2020 Last revised: 29 Jun 2020

See all articles by Jean-Noel Barrot

Jean-Noel Barrot

HEC Paris

Basile Grassi

Bocconi University - Department of Economics; Bocconi University - IGIER - Innocenzo Gasparini Institute for Economic Research; Centre for Economic Policy Research (CEPR)

Julien Sauvagnat

Bocconi University; Bocconi University - IGIER - Innocenzo Gasparini Institute for Economic Research

Date Written: May 12, 2020

Abstract

Typical government responses to pandemics involve social distancing measures designed to curb disease propagation. We evaluate the impact of state-mandated business closures in the context of the Covid-19 crisis in the US. Using state-level variations in the set of sectors forced to shut down, and within-state variations in local industry composition, we estimate the effects of business closures on infection and death rates. We find that locking down 10% of the labor force is associated with 0.017 and 0.0015 percentage points lower Covid-19 weekly infection and death rates. Business closures lead to significant declines in hours worked, and to large market value losses for affected firms. The findings translate into 29,000 saved lives for a cost of $169 billion.

Keywords: Covid-19, pandemic, business closures, non-essential businesses

JEL Classification: E32, I10, I18, H1

Suggested Citation

Barrot, Jean-Noel and Grassi, Basile and Sauvagnat, Julien, Costs and Benefits of Closing Businesses in a Pandemic (May 12, 2020). Available at SSRN: https://ssrn.com/abstract=3599482 or http://dx.doi.org/10.2139/ssrn.3599482

Jean-Noel Barrot (Contact Author)

HEC Paris ( email )

1 rue de la Liberation
Jouy-en-Josas Cedex, 78351
France

Basile Grassi

Bocconi University - Department of Economics ( email )

Via Gobbi 5
Milan, 20136
Italy

Bocconi University - IGIER - Innocenzo Gasparini Institute for Economic Research ( email )

Via Roentgen 1
Milan, 20136
Italy

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Julien Sauvagnat

Bocconi University ( email )

Via Sarfatti, 25
Milan, MI 20136
Italy

Bocconi University - IGIER - Innocenzo Gasparini Institute for Economic Research ( email )

Via Roentgen 1
Milan, 20136
Italy

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