The Political Economy of Pandemics

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