TITLE:
How Much Should Government Compensate Firms for Suspension of Their Businesses in Order to Fight off the New Coronavirus?
AUTHORS:
Yasunori Fujita
KEYWORDS:
Coronavirus, Compensation for the Losses in Business, Government’s Budget, Optimal Stopping Theory
JOURNAL NAME:
Theoretical Economics Letters,
Vol.10 No.3,
June
22,
2020
ABSTRACT: Although it is considered to be vital to stop the
businesses and reduce the overlaps of people in order to fight off the new
coronavirus, firms are not willing to shut their businesses unless they receive
the compensation for the losses in their businesses. In the present paper, we
attempt to develop measures to induce firms to shut their businesses as a
result of their maximizing problem. More precisely, we examine how much the government
should compensate the firms for their losses during the business closure
periods. We reveal that if the uncertainty or the government’s budget
increases, the government should increase the compensation per period for the
losses in business and shorten the length of the business closure period.