The Political Economy of Pandemics

33 Pages Posted: 28 May 2020

See all articles by Helios Herrera

Helios Herrera

HEC Montreal

Guillermo Ordoñez

University of Pennsylvania - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: May 28, 2020

Abstract

The COVID-19 policy responses represent an unprecedented challenge. Policy- makers worldwide, have to react fast to a totally new type of crisis under enhanced public scrutiny, as their policies are immediately compared across countries. We show how relative comparisons induce herding when policymakers are concerned by their popularity, and we discuss its extent under different scenarios. This policy contagion induce some countries to choose less efficient policies than they would in isolation or when facing a less correlated shock. Further, when shocks arrive se- quentially, first movers prompt coordination on their policies of later movers, albeit inducing less distortions than when shocks are simultaneous. On average, how- ever, the policy coordination triggered by a common pandemic shock improves welfare by disciplining biased policy agendas.

Keywords: herding, beauty contests, political agency, yardstick competition, COVID-19.

JEL Classification: D72, D84, F72

Suggested Citation

Herrera, Helios and Ordoñez, Guillermo, The Political Economy of Pandemics (May 28, 2020). Available at SSRN: https://ssrn.com/abstract=3613256 or http://dx.doi.org/10.2139/ssrn.3613256

Helios Herrera

HEC Montreal ( email )

3000, ch. de la Côte-Ste-Catherine
Montréal, Quebec H3T 2A7
Canada

HOME PAGE: http://www.hec.ca/en/profs/helios.herrera.html

Guillermo Ordoñez (Contact Author)

University of Pennsylvania - Department of Economics ( email )

Ronald O. Perelman Center for Political Science
133 South 36th Street
Philadelphia, PA 19104-6297
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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