The effect of health and economic costs on governments' policy responses to COVID-19 crisis, under incomplete information

COVID-19 outbreak has become an unprecedented health, economic and social crisis. We build a theoretical model, based on which we develop an empirical strategy to analyze the drivers of the agility of policy response to the outbreak. Our empirical results show that government overconfidence in its o...

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Bibliographic Details
Published inIDEAS Working Paper Series from RePEc
Main Authors Bel, Germà, Gasulla, Óscar, Mazaira-Font, Ferran A
Format Paper
LanguageEnglish
Published St. Louis Federal Reserve Bank of St. Louis 01.01.2020
Subjects
Coronaviruses
COVID-19
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Summary:COVID-19 outbreak has become an unprecedented health, economic and social crisis. We build a theoretical model, based on which we develop an empirical strategy to analyze the drivers of the agility of policy response to the outbreak. Our empirical results show that government overconfidence in its own country capacity of health services and the intensity of expected economic costs from hard measures to manage the crisis delayed policy response. Contrarily, being a game against nature with incomplete information, increased knowledge and reduced uncertainty on other countries’ policy responses and on the epidemic development increased the agility of the country’s policy response.