A Model of Crisis Management

Abstract

We propose a model of how multiple societies respond to a common crisis. A government faces a “damned-either-way” policy-making dilemma: aggressive intervention contains the crisis, but the resulting good outcome makes people skeptical of the costly response; light intervention worsens the crisis and causes the government to be faulted for not doing enough. This dilemma can be mitigated for the society that encounters the crisis first if another society faces the same crisis afterward. Our model predicts that the later society does not necessarily perform better despite having more information, while the earlier society might benefit from a dynamic counterfactual effect