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On the Dynamic Consistency of Reform and Compensation Schemes

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  • C. A. Claussen

Abstract

To make reform possible, politically strong losers have to be bought out. Whether the losers are fully compensated upfront or given running compensation depends on their political influence after reform. We build a simple but general model to study dynamic consistency of compensation and political support for reform. We find that positive but decreasing compensation is required in every period up to the last period the losers have political influence. In that period it increases dramatically. If there are limited resources available to compensate the losers upfront, increasing the cost of reversing the reform may reduce the political feasibility of reform.

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  • C. A. Claussen, 2002. "On the Dynamic Consistency of Reform and Compensation Schemes," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 5(3), pages 133-144.
    • Handle: RePEc:taf:jpolrf:v:5:y:2002:i:3:p:133-144
    DOI: 10.1080/1384128021000066107
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    References listed on IDEAS

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    1. Dani Rodrik, 2006. "Institutions for High-Quality Growth: What They Are and How to Acquire Them," Chapters, in: Kartik Roy & Jörn Sideras (ed.), Institutions, Globalisation and Empowerment, chapter 2, Edward Elgar Publishing.
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    5. Mariano Tommasi & Andrés Velasco, 1996. "Where are we in the political economy of reform?," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 1(2), pages 187-238.
    6. James A. Robinson & Daron Acemoglu, 2000. "Political Losers as a Barrier to Economic Development," American Economic Review, American Economic Association, vol. 90(2), pages 126-130, May.
    7. Geir Asheim & Carl Claussen & Tore Nilssen, 2006. "Majority voting leads to unanimity," International Journal of Game Theory, Springer;Game Theory Society, vol. 35(1), pages 91-110, December.
    8. Dani Rodrik, 1996. "Understanding Economic Policy Reform," Journal of Economic Literature, American Economic Association, vol. 34(1), pages 9-41, March.
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    Cited by:

    1. Geir Asheim & Carl Claussen & Tore Nilssen, 2006. "Majority voting leads to unanimity," International Journal of Game Theory, Springer;Game Theory Society, vol. 35(1), pages 91-110, December.

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