Intervention Uncertainty, Household Health, and Pandemic

This paper builds a government policy choice model in a general equilibrium setting in which households' health status responds to a stricter policy on the pandemic. By assuming an exogenous policy decision date, the model implies the government should maintain the current policy until the perceived effects of the current policy on infection are too low. The threshold is determined by policy uncertainty and risk-aversion, which further control the announcement effects of the new policy. Higher policy uncertainty will diminish the positive effects of the stricter policy on households' health status. Also, households' risk-aversion reduces the jump in households' health status once the implementation of the new policy is announced. These qualitative results still hold when the government can choose the policy change date