News shocks at the local level: Evidence from a conditional Covid-19 containment measure

Abstract

To reduce the spread of Covid-19 whilst limiting the economic costs of containment policies, governments have introduced geographically-flexible conditional restrictions — measures targeting sub-national areas whose severity depends on the virus’s local incidence rate. I analyze whether conditional measures impact transmission rates via a news-shock effect — that is, by incentivizing indirect actions in anticipation of the policies being carried out. Exploiting a natural experiment from Romania in a regression-discontinuity framework, I provide early empirical evidence in this sense: I find that the Covid-19 incidence rate fell significantly in targeted constituencies following the announcement of a conditional containment measure, but prior to the policy being implemented. My results add to a broader literature on news-driven fluctuations, wherein expectations of future policies can impact immediate behaviors. I conclude by discussing an important avenue for future research.