Research / BFI Working PaperNov 30, 2020

Political Economy of Crisis Response

We offer a theoretical model in which heterogeneous agents make individual decisions with negative external effects such as the extent of social distancing during pandemics. Because of the externality, agents have different individual and political preferences over the policy response. Personally, they might prefer a low-level response, yet would vote for a higher one because it deters others. In particular, agents want one level of slant in the information they base their actions on and a different level of slant in public announcements. The model accounts for numerous empirical regularities of the early public response to COVID-19 in the U.S.

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