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Political Risk Aversion

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  • Laura Valderrama
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    Abstract

    This paper studies the effect of individual uncertainty on collective decision-making to implement innovation. We show how individual uncertainty creates a bias for the status quo even under irreversible voting decisions, in contrast with Fernandez and Rodrik (1991). Blocking innovation is rooted in the aversion to the potential loss of political clout in future voting decisions. Thus, risk neutral individuals exhibit what we call political risk aversion. Yet individual uncertainty is not all bad news as it may open the door to institutional reform. We endogenize institutional reform and show a non-monotonic relationship between institutional efficiency and the size of innovation.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 09/194.

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    Length: 26
    Date of creation: 01 Sep 2009
    Date of revision:
    Handle: RePEc:imf:imfwpa:09/194

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    Related research

    Keywords: Corporate sector; Economic models; Labor mobility; Productivity; Technology transfer; Voting power; new technology; technology choice; institutional reform; investors; expropriation; technological innovation; ownership structure; technologies; investment banking; technological change; new technologies; new ? technology; foreign investors; technological development; technological progress; internet; technological innovations;

    This paper has been announced in the following NEP Reports:

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