At every stage, acting early pays

by Ruth Hill, Chief Economist, Centre for Disaster Protection

Safety gear to provide maximum protection from Ebola. Photo: Simon Davis / Foreign, Commonwealth & Development Office (FCDO)

Covid-19 is the largest global shared experience of crisis since the Second World War. This shared experience is giving many of us a personal understanding of some fundamental truths about crises that we had hitherto, luckily, avoided. Perhaps most notably, we are learning the value of acting early to reduce impacts—and that the economic and social repercussions are large and will be long-lasting. As we replay the past few months in our heads it is hard to not think about the actions that could have been taken to limit the spread of the disease. The benefits of acting early—such as travel restrictions to contain the spread or investing in testing capacity—are painfully clear to us. This is something that we have seen play out across crises in the past. From pandemics to floods to drought, we often respond too late. But when we collectively get it right and respond early, we save lives and reduce the economic cost.

In the best of cases we respond quickly enough to fundamentally change the course of a disaster. Farmers receive cash that allows them to pay for supplemental irrigation to limit the impact of drought on food production. A spike in cholera cases is predicted before it happens and support is provided to improve water, sanitation, and hygiene.

Even if we miss that window, responding quickly to help households cope with income losses they have experienced from the immediate impact of the crisis really helps. The gain from an emergency response that is one month earlier protects the food security of children and their physical and cognitive development. This alone contributes to 0.8% higher income per capita in the long run. There are many other gains that come from protecting households from using other costly coping mechanisms such as risky sex work, usurious loans and selling the assets they need to use to earn next year’s income.

So why didn’t we act earlier?

Acting early makes sense, and the evidence stacks up in favour of this—so why did we fail to act early so spectacularly this time? And why do we repeatedly fail to act early to limit the impact of a crisis?

Behavioural insights from psychologists and economists can help us understand this. A couple to start with:

Ark avoidance. It is hard to withstand the ridicule that comes with building an ark in the middle of dry land on a sunny day. Psychologists have noted for many years that people tend to be optimistic about the likelihood that a bad event will not happen to them (the ‘it won’t happen to me’ heuristic). This makes it even harder to be the person calling for early action on a low-probability, worst-case scenario. Even if the cost of acting is small, the psychological cost-benefit assessment may not resolve in favour of taking action. And this gets harder when the costs of early action are actually quite large, such as taking children out of school or shutting down the economy.

Inertial tendencies. Crises often build up gradually, and if there are no pre-determined lines in the sand it can be hard to know when to act. When does the extra death from suspected pneumonia trigger heightened health surveillance? How many cases should prompt you to shut schools? Or in a drought, how do you decide that the additional day without rain is the one where you will start to irrigate? Economic theory shows that when there are lumpy costs associated with taking action, people do not continuously update their actions on the basis of new information. Periods of inaction can be consistent with the arrival of new information, which should encourage action. In a crisis setting, the tendency to not continuously update decisions on the basis of new information can mean that actions can come too late. 

There are also plenty of incentives stacked up against acting early. The exact nature of the incentives differs based on the crises and the country. Almost universally however, political incentives are aligned with big shows of support in a crisis, rather than preparing for a potential disaster. This has been shown to win more votes in the US and in Mexico. These political disincentives flow through to bureaucracies. For low-income countries, financial incentives faced by governments are stacked against early action. Early action is mainly financed by fiscal revenues or developmental loans. Grant finance in the form of humanitarian aid only comes when the crisis is well developed, and large displays of suffering are already observed. 

What does this mean for our response to covid-19?

While we have missed many chances to act early to reduce the health impact of the crisis, there are still many opportunities in front of us. Nearly every country is taking action to ‘flatten the curve’. We need to continue this and support testing, personal protective equipment supply chains, and health facility capacity. We also need to take early action in every country to mitigate the impact of the economic losses on people’s welfare. We need to be mindful that if we stick with our usual way of working, we will be biased towards acting too late. To act early to combat the economic fallout we can: 

• Make cash transfers as soon as possible to households that were already living on the edge and have lost their income or find they cannot purchase necessities in the face of soaring prices. The cost of not doing this is that households will be pushed into more and more costly coping mechanisms that make it harder for them to recover in the long run. Without this the suffering becomes worse than it needs to be. Instead of a dip in income it becomes lost cognitive and physical development for children with long-run economic consequences. This is just as true for households living close to the poverty line in better off economies as in low-income countries. However, there are many more households in low-income countries that are living on the edge, and governments do not have the fiscal space to provide transfers to them. Supporting these households requires large and immediate financial flows to low-income counties. For those who have funding decisions to make, it is imperative to get support to needy households in low-income countries as quickly as possible. This is a no-regrets action that carries benefits regardless of how the pandemic continues to unfold.

• Make loans to firms that have low levels of liquidity and are large employers of poor households. In many economies this is small and medium enterprises. Keeping these firms afloat allows poor households to have jobs to go back to. It allows these months to be a temporary loss of income rather than a more permanent loss of livelihood. 

We can also learn. We can use these insights to take action to make sure that we don’t end up here again. We need to commit to not forgetting the importance of early action when this is all over. We need to be more aware of the behavioural biases and incentives that stop us from acting early. And we need to put in place financing mechanisms, technology, institutions to mitigate them. For example, setting triggers—lines in the sand—that we don’t allow ourselves to cross without triggering action. Or putting in place the financing to allow our early actions to be taken with as little cost, and as much automaticity, as possible. 

The Centre’s Glossary of Terms can be found here.