DP14668 National containment policies and international cooperation

Author(s): Thorsten Beck, Wolf Wagner
Publication Date: April 2020
Date Revised: April 2020
Keyword(s): Covid-19 pandemic, cross-border cooperation, externalities
JEL(s): F2, F5, F6, I1
Programme Areas: International Macroeconomics and Finance
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=14668

Policies that curtail social and economic activities during a pandemic are predominantly decided upon at the national level, but have international ramifications. In this paper we examine what type of inefficiencies this may create and how cooperation across countries may improve outcomes. We find that inefficiencies arise even among completely identical countries. We show that countries are likely to choose excessively lenient policies from the perspective of world welfare in later stages of the pandemic. This provides a rationale for setting minimum containment standards internationally. By contrast, in early and intermediate stages of the pandemic, national containment policies may also be excessively strict. Whether or not this is the case depends on country's degree of economic integration relative to (outward and inward) mobility of people.