Partially Right Means Generally Wrong: Why Some COVID-19 Mitigation Strategies Keep on Failing (preprint)

Why do some COVID-19 mitigation strategies fail? As the pandemic continues to spread, policymakers are struggling to find effective policies that lead to fewer infections at a reasonable cost. Although the elusive nature of the virus makes predictions difficult, the field of law and economics provides tools that can help understand how a given policy should affect behavior through its impact on incentives. Yet, existing studies mostly look at individual policies or specific activities in isolation. Policymakers thereby neglect the many possible interaction effects that may arise due to the simultaneous adoption of concurrent strategies and the heterogeneity of social and environmental attributes. When interaction effects are not accounted for, policymakers run the risk of drawing incorrect conclusions, which focus on partial effects that do not necessarily hold as a general equilibrium. In particular, it is crucial to consider substitution effects: even policies that successfully shift behavior away from problematic activities may be ineffective if individuals simply switch to other, equally harmful, activities. Similarly, complementarity effects may occur, where a policy that targets one harmful activity indirectly discourages other related activities. Our analysis, which builds on both traditional and behavioral law and economics, thus provides a new explanation for why some COVID-19 mitigation strategies may fail.

Crime and Punishment in Times of Pandemics (preprint)

How should we think about crime deterrence in times of pandemics? The economic analysis of crime tells us that potential offenders will compare the costs and the benefits from crime and from innocence and then choose whichever option that is more profitable. We must therefore ask ourselves how this comparison is affected by the outbreak of a pandemic and the policy changes which may accompany it, such as governmental restrictions, social distancing, and economic crises. Using insights from law and economics, this article investigates how the various components in the cost-benefit analysis of crime might change during a pandemic, focusing on COVID-19 as a test case. Building on classical theoretical models, existing empirical evidence, and behavioral aspects, the analysis reveals that there are many potentially countervailing effects on crime deterrence. The article thus highlights the need to carefully consider which aspects are applicable given the circumstances of the pandemic, as whether crime deterrence will increase or decrease should depend on the strength of the effects at play.

Let it Flow: Information Exchange in Video Conferences versus Face-to-Face Meetings (preprint)

The COVID-19 pandemic has dramatically changed how people interact with one another. Due to social distancing policies, interactions that traditionally occur in-person have largely transitioned into virtual alternatives. This shift raises an intriguing question: are virtual communications a viable alternative for face-to-face meetings?We investigate this experimentally by contrasting face-to-face meetings (FtF) and video conferences (VC) in the context of an information-flow task. In the experiment, the subjects need to solve a riddle based on a set of clues, which help narrow down the set of options but are not enough to solve the riddle correctly. However, each subject can invest money to increase the probability of communicating with another subject before attempting to solve the riddle. Successful communications enable subjects to easily solve the riddle, as each communicating pair holds complementary clues. Thus, if the information is exchanged effectively, subjects’ performance should be high. Varying the medium (FtF or VC) available for communication, we find that while the performance in the task itself does not depend on the medium, subjects do display significant differences in their willingness to invest, ex-ante beliefs, and ex-post reporting on the exchange of information during communication. Particularly, age plays an important role: Younger subjects are more optimistic about the prospect of virtual meetings, but less likely to invest their endowment. We relate our findings to several real-world settings and discuss implications for legal policy.

How Crisis Affects Crypto: Coronavirus as a Test Case (preprint)

Everyone is talking about the Coronavirus (a.k.a. “COVID-19”). What began as a local health situation in China has swiftly become a global epidemic, causing havoc and mayhem all around the world. The damages caused by the virus are overwhelming and will, in all likelihood, have long-term implications for the global economy. Naturally, the traditional financial markets are responding negatively to the news about the virus and share prices are nosediving. However, there are other implications of this crisis, which are perhaps less obvious but equally important. One such implication relates to the cryptocurrency market. In fact, this crisis provides us with the first opportunity to investigate an intriguing question: How does a global crisis, such as the one caused by the Coronavirus, affect cryptocurrencies? On the one hand, cryptocurrencies are supported by a decentralized mechanism, which is independent of governmental functions and available anywhere in the world. Thus, people may respond to the threat of global instability by switching from traditional currencies to cryptocurrencies. On the other hand, cryptocurrencies may be both tightly related to economic activity and, due to lack of sufficient regulation, subject to manipulations by sophisticated investors, so that they cannot escape the fate of traditional markets. Analyzing data on the top 100 cryptocurrencies in the market, we find that the inflow of identified Coronavirus cases is, on average, positively associated with the market cap and trade volume of cryptocurrencies. However, we also find that an opposite trend emerged once Coronavirus cases began to accumulate, eventually leading to a decline in the cryptomarket. Given our findings, we discuss insights on how one can improve the regulation of cryptocurrencies to account also for times of crisis.