The Design of Reform Packages Under Uncertainty
AbstractWe present a model of large-scale economic reforms, modelled on the transition process in Eastern Europe, with aggregate and individual uncertainty concerning the outcome of reforms. The government is assumed to choose the speed and sequencing of reforms. We compare `big bang' strategies with gradualist reform packages. We show that 1) gradualist reform packages may be easier to get started; 2) optimal sequencing of reforms should aim at creating constituencies for further reforms; and 3) gradualism may reduce ex post reversibility of reforms through a strong investment response in cases where the option value of waiting generates a low investment response under `big bang'.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 860.
Date of creation: Nov 1993
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- H89 - Public Economics - - Miscellaneous Issues - - - Other
- P50 - Economic Systems - - Comparative Economic Systems - - - General
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- Il partito di Barca: dai Mezzi ai Fini
by Paolo Manasse in Back-Of-The-Envelope Economics on 2013-04-13 19:13:00
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