CFDP 2266

A Model of Crisis Management


Publication Date: December 2020

Pages: 40


We propose a model of how multiple societies respond to a common crisis. A government faces a “damned-either-way” policy-making dilemma: aggressive intervention contains the crisis, but the resulting good outcome makes people skeptical of the costly response; light intervention worsens the crisis and causes the government to be faulted for not doing enough. This dilemma can be mitigated for the society that encounters the crisis first if another society faces the same crisis afterward. Our model predicts that the later society does not necessarily perform better despite having more information, while the earlier society might benefit from a dynamic counterfactual effect.

Keywords: Crisis Management, Counterfactual Effect, Political Accountability, Public Policy, Pandemic

JEL Classification Codes: D82, D83, F50, H12

JEL Classification Codes: D82D83F50H12

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