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Non-cooperative and Cooperative Policy Reforms under Uncertainty and Spillovers


  • Carsten Hefeker
  • Michael Neugart


When countries need to implement costly economic policy reforms, these often imply uncertainties about their effectiveness for the home country and their spillovers to other countries. We develop a model to show that under these circumstances countries implement too few or too many policy reforms. From a social perspective, too many reforms follow if the spillover effects of reforms become sufficiently uncertain. Since centralization of policies to correct inefficient policies is often not possible, we look for alternative instruments that can restore the efficient level of reforms. We compare subsidizing reform efforts with insuring against bad outcomes, and argue that subsidies are advantageous in terms of requiring less information for implementation.

Suggested Citation

  • Carsten Hefeker & Michael Neugart, 2017. "Non-cooperative and Cooperative Policy Reforms under Uncertainty and Spillovers," CESifo Working Paper Series 6329, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_6329

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    More about this item


    policy reforms; spillovers; policy uncertainty; free-riding; subsidy; insurance;

    JEL classification:

    • F55 - International Economics - - International Relations, National Security, and International Political Economy - - - International Institutional Arrangements
    • H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General

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