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

Abstract

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.