Pandemic Lockdown: The Role of Government Commitment

Christian Moser and Pierre Yared

No 627, Staff Report from Federal Reserve Bank of Minneapolis

Abstract: This paper studies lockdown policy in a dynamic economy without government commitment. Lockdown imposes a cap on labor supply, which improves health prospects at the cost of economic output and consumption. A government would like to commit to the extent of future lockdowns in order to guarantee an economic outlook that supports efficient levels of investment into intermediate inputs. However, such a commitment is not credible, since investments are sunk at the time when the government chooses a lockdown. As a result, lockdown under lack of commitment deviates from the optimal policy. Rules that limit a government’s lockdown discretion can improve social welfare, even in the presence of noncontractible information. Quantitatively, lack of commitment causes lockdown to be significantly more severe than is socially optimal. The output and consumption loss due to lack of commitment is greater for higher intermediate input shares, higher discount rates, higher values of life, higher disease transmission rates at and outside of work, and longer vaccine arrival times.

Keywords: Lockdown; Commitment; Flexibility; Non-pharmaceutical interventions; Pandemic restrictions; SIRD model; Rules; Optimal policy; COVID-19 (search for similar items in EconPapers)
JEL-codes: E61 H12 I18 (search for similar items in EconPapers)
Date: 2021-08-03
New Economics Papers: this item is included in nep-dge and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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https://www.minneapolisfed.org/research/sr/sr627.pdf

Related works:
Journal Article: Pandemic Lockdown: The Role of Government Commitment (2022)
Working Paper: Pandemic Lockdown: The Role of Government Commitment (2020)
Working Paper: Pandemic Lockdown: The Role of Government Commitment (2020)
Working Paper: Pandemic Lockdown: The Role of Government Commitment (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedmsr:92934

DOI: 10.21034/sr.627

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