Government’s corona crisis policy handles uncertainty well

Aurélien Baillon, Professor of Economics of Uncertainty at Erasmus School of Economics, believes that the government deserves more than a passing grade when evaluating the corona crisis policy. According to him, the term intelligent lockdown is certainly justified, not based on its effectiveness but based on why it has been implemented. According to him, we can help the government by trusting the best available estimates from the Dutch National Institute for Public Health and the Environment (RIVM), and not by focusing on extreme scenarios.

Use average estimates

The first principle rests on using the estimates we have. ‘Instead of focusing on the worst-case scenario, or thinking that everything is based on chance, it's important to use our best estimate of the risk involved, and this best estimate is the average,' Baillon writes.

However, using average estimates doesn't mean we have to ignore extreme scenarios. In fact, this is not even possible, as these extreme scenarios influence the average. ‘The average scenario is not the scenario based on average parameters, but the average of the scenarios obtained for all possible parameter combinations, taking into account that some combinations can result in very bad outcomes.’

Keep updating estimates

The second principle rests on the collection of new information. When the RIVM has attached a certain probability to two scenarios and new information increases the chance that one of these scenarios will become reality, a new risk estimate must be made. The decisions made by the government afterwards must then be based on this new risk estimate and not on the worst-case scenario.

Maximise expected welfare

The third and final principle tells us that when choosing policies, we must maximise the expected well-being of the population. This means that we should not limit ourselves to one dimension, such as public health alone, but consider all possible consequences of the policy, for example people's psychological health and income.

The government’s score

Based on the above principles, the government certainly deserves more than a passing grade, according to Baillon. Most decisions taken by the government are based on the recommendations of the National Guidance for Infectious Disease Threats and Crises (OMT), itself guided by the estimates of the RIVM. The arguments put forward in April to reopen schools were carefully based on the latest findings of the RIVM, not on worst-case scenarios,' writes Baillon.

Nevertheless, not everything is perfect. The confusion about group immunity in March was worrying. The prime minister recently stated that public health came first. ‘Health may be the most important thing for our well-being, but in our daily lives we always weigh up health against other aspects such as wealth, entertainment and social contacts'. However, the government's actual policy seems more nuanced and the measures are flexible enough to keep a large part of the economy going.

More information

The full article from ESB, 25 May 2020, can be found here (in Dutch). 

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