Pandemic Lockdown: The Role of Government Commitment

Christian A. Moser, Pierre Yared

NBER Working Paper No. 27062
Issued in April 2020, Revised in October 2020
NBER Program(s):Economic Fluctuations and Growth, Health Economics, Political Economy

This paper studies optimal lockdown policies in a dynamic economy without government commitment. A lockdown imposes a cap on labor supply, which lowers economic output but improves health prospects. A government would like to commit to limit the extent of future lockdowns in order to increase investment by supporting a more optimistic economic outlook. However, such a commitment may not be credible since investment decisions are sunk at the time when the government decides on lockdowns. Rules that limit a government’s future policy discretion can improve the efficiency of lockdowns, even in the presence of noncontractible information.

Acknowledgments

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Document Object Identifier (DOI): 10.3386/w27062