How Much Should Government Compensate Firms for Suspension of Their Businesses in Order to Fight off the New Coronavirus?

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.