The Political Economy of COVID-19

Rachael K. Behr

Advisor: Virgil Storr, PhD, Department of Economics

Committee Members: Peter J. Boettke, Christopher J. Coyne

Buchanan Hall, #D100
April 19, 2022, 12:00 PM to 01:30 PM

Abstract:

This dissertation studies COVID-19 broadly through the lens of political economy, focusing on the social, entrepreneurial, and political implications of the pandemic, shedding light on important but perhaps overlooked issues stemming from the pandemic. 

The first chapter, “Commercial Friendships During a Pandemic”, published at the The Review of Austrian Economics, discusses what has happened to commercial relationships and friendships throughout the COVID-19 pandemic. Although much of the nascent scholarship on COVID-19 has highlighted the tremendous health, economic, and social consequences of the pandemic, what has been underappreciated is the loss of commercial friendships due to the pandemic. Markets are social spaces where individuals can meet and form meaningful connections. But, because many market interactions that would have taken place in person before the pandemic moved remote and online, or were cancelled altogether, the COVID-19 pandemic has limited the ability of market participants to form and maintain meaningful social bonds. Indeed, we argue that COVID-19 is a disruptor of the formation and continuance of these commercial relationships. Specifically, we find that throughout the COVID-19 pandemic: (1) commercial interactions have become more anonymous and less personalized; (2) the formation and maintenance of commercial friendships are hindered because of the transition to virtual platforms, which are imperfect substitutes for in person connections; (3) during lockdowns, individuals spend more time interacting with closer ties rather than weaker ties; and (4) during the pandemic commercial settings are less likely to serve as social arenas.

The second chapter, “Entrepreneurship During a Pandemic" studies entrepreneurship during the COVID-19 pandemic. Entrepreneurship during pandemics is a unique type of crisis entrepreneurship. This paper seeks to analyze entrepreneurship during pandemics, specifically during the COVID-19 pandemic, and situate pandemic entrepreneurship within the broader crisis entrepreneurship literature. There is a large literature about crisis entrepreneurship, spanning from necessity, natural disaster, long term crisis, and financial crisis entrepreneurship. We contend that entrepreneurship during pandemics is a unique type of crisis entrepreneurship. The framework we used to understand crisis entrepreneurship, including pandemic entrepreneurship, is the Kirznerian ‘identification’ moment and the Schumpeterian ‘action’ moment. We argue, using evidence from the US COVID-19 pandemic, that pandemics impact both the ‘identification’ and ‘action’ moments of entrepreneurship. The identification moment is muddled for entrepreneurs because of the shifting conditions (such as new variants, shifting government mandates, and so forth) along with extremely high uncertainty. The action moment becomes more difficult because of the necessity of physical distancing and because, generally, all crises raise the cost of entrepreneurial action. That said, we still document considerable entrepreneurship during pandemics, including the fact that pandemic entrepreneurs provide needed goods and services, introduce new goods and services, rely upon local and customary knowledge, and bring about recovery.

The last chapter, “The Median Voter and Mask Mandates: Evidence from State Level Masking Policies During COVID-19”, applies the median voter theorem to the COVID-19 pandemic, particularly to mask mandates. While much of the nascent literature on COVID-19 assumes benevolence of government actors, this paper follows Boettke and Powell’s (2021) call that in crises like COVID-19, we ought not assume such benevolence. This paper explores how the median voter theorem relates to states’ mask mandates and guidance during the COVID-19 pandemic in the United States. Specifically, this paper investigates whether governors followed constituent beliefs around masks due to reelection pressures, or, whether they acted out of public health incentives and implemented masks due to public health pressures. We predict that reelection incentives will be a factor that drives governors’ actions around mask mandates. Particularly, governors will need to care about days until reelection: as the reelection approaches, governors will care relatively more about following constituent preferences. On the other hand, if acting out of public health concerns, governors will care more about case and death rates when considering mask mandates. We examine both hypotheses and find that both drive governors’ decisions around mask mandates. These results underscore Boettke and Powell’s (2021) claims that we must not assume benevolence of government actors during the pandemic. We use the results from our multivariate regressions to motivate the paper, and several case studies of governors’ actions to highlight and contextualize the empirical results. Specifically, we look at governors in the states of New York, Massachusetts, Hawaii, North Dakota, South Dakota, and Kansas, which help contextualize our results.