The Covid-19 crisis is well and truly upon us. An unprecedented lockdown and economic relief measures have been announced in India. Almost never has it been more necessary for government policy to succeed.
Behavioural economics has shown us that NUDGES (Thaler and Sunstein, 2008) can be crucial in getting the necessary response from individuals, which in turn can determine the success or failure of policy. NUDGES stands for iNcentives, Understand mappings, Defaults, Give feedback, Expect error, Structure complex choices. In my opinion, N, U, and S are of prime importance for the success of the government’s policies to tackle the fall-out from Covid-19.
The announcements made by prime minister Narendra Modi and others have been excellent on many counts, such as clearly explaining the need for social distancing. But in view of the S, which can be interpreted as a need for simplicity, and the U, which means that communication should explain how choices/options affect individuals’ welfare, Modi and others should clearly announce the following as soon as possible.
- An explanation of exactly how the relief package helps each stratum of the society. For instance, announcements of the form “if you are an urban daily-wage worker in the unorganised sector, you will be given the following benefits. You can avail these benefits in the following manner.” The same can be done for agricultural labourers, tenant farmers, and each other substantial stratum of the population. We shouldn’t leave citizens to work out how they can benefit from the macroeconomic relief measures.
Incentives of the following need to be urgently corrected.
- The private players involved in food procurement and supply. We are in the middle of the Rabi harvest. The smooth functioning of the food supply chain is crucial for farmers and consumers alike. But each private player in the supply chain is faced with uncertainty in this time of lockdown. He isn’t sure if his purchased stock will sell downstream. This can cause prices to plummet for farmers, as middlemen don’t want to take the risk of buying but not being able to sell, and prices to skyrocket for customers due to shortages. To remedy this, all levels of the government have to coordinate at all points in the food supply chain, and make sure that it is common knowledge that the food supply chain is fully functional.
According to media accounts, panic and confusion contributed to more than 100 deaths during the 2016 demonetisation episode. Using behavioural insights to get information and incentives right in the time of Covid-19 pandemic and lockdown, which dwarfs demonetisation as a policy challenge, can save many precious lives.
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