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International Competitiveness and Economic Recovery: Examples of the Risk-Ambition Trade-Off in Dutch Economic Policies

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  • Hughes Hallett, Andrew J

Abstract

The disadvantage of certainty-equivalent decisions is that they are invariant to risk. This paper contrasts certainty equivalance with risk-sensitive rules derived by combining the first two movements of a stochastic objective. Adjusting the weight in that combination traces out an uncertainty frontier, from risk neutrality to pure risk aversion. The inflation-output-wages trade-off is studied as a function of increasing risk aversion in Dutch policy making. Risks are reduced by preserving purchasing power (removing wage restraint) at the cost of output and the economy's international competitiveness. Copyright 1987 by Blackwell Publishers Ltd and The Victoria University of Manchester

Suggested Citation

  • Hughes Hallett, Andrew J, 1987. "International Competitiveness and Economic Recovery: Examples of the Risk-Ambition Trade-Off in Dutch Economic Policies," The Manchester School of Economic & Social Studies, University of Manchester, vol. 55(1), pages 38-59, March.
    • Handle: RePEc:bla:manch2:v:55:y:1987:i:1:p:38-59
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