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Investing in Policy Reform

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  • Jim Leitzel
  • Erik Weisman

Abstract

Sunk 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.

Suggested Citation

  • Jim Leitzel & Erik Weisman, 1999. "Investing in Policy Reform," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 155(4), pages 696-696, December.
  • Handle: RePEc:mhr:jinste:urn:sici:0932-4569(199912)155:4_696:iipr_2.0.tx_2-b
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    Cited by:

    1. Grier, Kevin & Sutter, Daniel, 2007. "External influences on economic reform: Reform as a regional public good," European Journal of Political Economy, Elsevier, vol. 23(3), pages 660-673, September.
    2. Wesseler, Justus & Scatasta, Sara & Nillesen, Eleonora, 2007. "The maximum incremental social tolerable irreversible costs (MISTICs) and other benefits and costs of introducing transgenic maize in the EU-15," MPRA Paper 33229, University Library of Munich, Germany.
    3. Yunker, James A., 2012. "Estimated optimal drug law enforcement expenditures based on U.S. annual data," Journal of Policy Modeling, Elsevier, vol. 34(3), pages 356-371.

    More about this item

    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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