IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

Shock Therapy vs. Gradualism: A Neoclassical Perspective

  • Vivek H. Dehejia

    (Carleton University)

This paper considers the "shock therapy" vs. "gradualism" debate in the transition economics literature. It stresses the primacy of political economy considerations, which arise naturally when reforming policy makers do not have to lump-sum redistributive instruments. The paper summarizes the results of recent research by the author, which considers the implications of embedding an explicit model of policy formation into an otherwise standard, neoclassical model of structural adjustment. There are two principal findings. First, when adjustment cost: are very high, shock therapy will be politically infeasible, because it will not command majority support in a binary contest over the status quo. Second, in such cases, it is possible to construct a gradualist alternative which is politically feasible, which occurs because the pivotal group of voters (workers who begin in the declining sector) will perceive a net increase in the present value of their earnings vis-a-vis the status quo. Furthermore this gradualist alternative is dynamically consistent, in the sense that workers who choose to support reform at its inception will never wish to abandon it.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://college.holycross.edu/RePEc/eej/Archive/Volume22/V22N4P425_431.pdf
Download Restriction: no

Article provided by Eastern Economic Association in its journal Eastern Economic Journal.

Volume (Year): 22 (1996)
Issue (Month): 4 (Fall)
Pages: 425-431

as
in new window

Handle: RePEc:eej:eeconj:v:22:y:1996:i:4:p:425-431
Contact details of provider: Postal: c/o Dr. Alexandre Olbrecht, The Anisfield School of Business 205, Ramapo College, 505 Ramapo Valley Road, Ramapo, New Jersey 07430, USA
Phone: (201) 684-7346
Web page: http://www.ramapo.edu/eea/journal.html
Email:


More information through EDIRC

No references listed on IDEAS
You can help add them by filling out this form.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:eej:eeconj:v:22:y:1996:i:4:p:425-431. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Victor Matheson, College of the Holy Cross)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.