COVID-19, lockdown and two-sided uncertainty

Abstract

When COVID-19 struck, the New Zealand government had two choices: enter lockdown immediately or delay its decision. Delay would have enabled more information to emerge about health and economic dynamics, while preserving the option to act at a later date. However, delay may have destroyed the option to eradicate COVID-19. We model the government’s decision when faced with the uncertainty around health and economic dynamics generated by COVID-19. Our model captures both two-sided uncertainty and the dynamic consequences that flow from the government’s initial decision. Our analysis will help guide future policy decisions amid similarly complex uncertainties.