Estimating the Costs and Benefits of Mandated Business Closures in a Pandemic

23 Pages Posted: 20 May 2020

See all articles by Jean-Noel Barrot

Jean-Noel Barrot

HEC Paris

Basile Grassi

Bocconi University - Department of Economics; Bocconi University - IGIER - Innocenzo Gasparini Institute for Economic Research; Centre for Economic Policy Research (CEPR)

Julien Sauvagnat

Bocconi University; Bocconi University - IGIER - Innocenzo Gasparini Institute for Economic Research

Date Written: May 2020

Abstract

Typical government responses to pandemics involve social distancing measures implemented to curb disease propagation. We evaluate the impact of state-mandated business closures in the context of the Covid-19 crisis in the US. Using state-level variations in the set of sectors defined as non-essential and forced to shut down, and geographic variations in industry composition, we estimate the effects of business closure decisions on firms' market value, and on infection and death rates. We find that a 10 percentage point increase in the share of restricted labor is associated with a drop by 3 percentage points in April 2020 employment, a 1.87% drop in firms' market value, and 0.15 and 0.011 percentage points lower Covid-19 infection and death rates, respectively. An extrapolation of these preliminary findings suggests that state-mandated business closures might have cost $700 billion and saved 36,000 lives so far.

Keywords: business closures, COVID-19, non-essential businesses, Pandemic

JEL Classification: E32, H1, I10, I18

Suggested Citation

Barrot, Jean-Noel and Grassi, Basile and Sauvagnat, Julien, Estimating the Costs and Benefits of Mandated Business Closures in a Pandemic (May 2020). CEPR Discussion Paper No. DP14757, Available at SSRN: https://ssrn.com/abstract=3603989

Jean-Noel Barrot (Contact Author)

HEC Paris ( email )

1 rue de la Liberation
Jouy-en-Josas Cedex, 78351
France

Basile Grassi

Bocconi University - Department of Economics ( email )

Via Gobbi 5
Milan, 20136
Italy

Bocconi University - IGIER - Innocenzo Gasparini Institute for Economic Research ( email )

Via Roentgen 1
Milan, 20136
Italy

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Julien Sauvagnat

Bocconi University ( email )

Via Sarfatti, 25
Milan, MI 20136
Italy

Bocconi University - IGIER - Innocenzo Gasparini Institute for Economic Research ( email )

Via Roentgen 1
Milan, 20136
Italy

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