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Ambiguity, Transparency, and Institutional Strength

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  • Mr. S. Nuri Erbas

Abstract

Institutional transparency makes future contingencies more easily predictable for investors. Greater transparency can be achieved through vertical and horizontal integration of policy rules, which may result in lower Knightian uncertainty (ambiguity). In a model based on cumulative prospect theory, for a given probability and payoff structure, expected return on investment is higher in more transparent countries; therefore, those countries attract more investment and grow faster than less transparent countries. Lower transparency may result in inherently higher volatility.

Suggested Citation

  • Mr. S. Nuri Erbas, 2004. "Ambiguity, Transparency, and Institutional Strength," IMF Working Papers 2004/115, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2004/115
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    References listed on IDEAS

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    Cited by:

    1. Kraussl, Roman, 2005. "Do credit rating agencies add to the dynamics of emerging market crises?," Journal of Financial Stability, Elsevier, vol. 1(3), pages 355-385, April.
    2. Mr. S. Nuri Erbas & Chera L. Sayers, 2006. "Institutional Quality, Knightian Uncertainty, and Insurability: A Cross-Country Analysis," IMF Working Papers 2006/179, International Monetary Fund.

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