Investing in Policy Reform
AbstractSunk costs and uncertainty characterize many public policy changes, as well as private investments. The Dixit-Pindyck theory of investment under uncertainty can then be applied to policy reforms, generating a positive option value to delaying a policy reform. The potential to adjust enforcement provides an additional lever for policy makers, as examined here with respect to enforcing a drug prohibition. Control over enforcement can make it optimal to further delay ending a drug ban. A de jure drug legalization is then likely to follow de facto liberalization, as enforcement effort is first reduced.
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Bibliographic InfoArticle provided by Mohr Siebeck, Tübingen in its journal Journal of Institutional and Theoretical Economics.
Volume (Year): 155 (1999)
Issue (Month): 4 (December)
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Find related papers by JEL classification:
- D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
- K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
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