On the Efficacy of Reforms: Policy Tinkering, Institutional Change, and Entrepreneurship
We analyze the interplay of policy reform and entrepreneurship in a model where investment decisions and policy outcomes are both subject to uncertainty. The production costs of non-traditional activities are unknown and can only be discovered by entrepreneurs who make sunk investments. The policy maker has access to two strategies: policy tinkering,' which corresponds to a new draw from a pre-existing policy regime, and institutional reform,' which corresponds to a draw from a different regime and imposes an adjustment cost on incumbent firms. Tinkering and institutional reform both have their respective advantages. Institutional reforms work best in settings where entrepreneurial activity is weak, while it is likely to produce disappointing outcomes where the cost discovery process is vibrant. We present cross-country evidence that strongly supports such a conditional relationship.
|Date of creation:||Apr 2004|
|Date of revision:|
|Publication status:||published as Eicher, Theo S. and Cecilia Garcia-Penalosa (eds.) Institutions, Development, and Economic Growth CESifo Seminar Series. Cambridge and London: Cambridge University Press, 2006.|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
Web page: http://www.nber.org
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Daron Acemoglu & Philippe Aghion & Fabrizio Zilibotti, 2002.
"Distance to Frontier, Selection, and Economic Growth,"
NBER Working Papers
9066, National Bureau of Economic Research, Inc.
- Daron Acemoglu & Philippe Aghion & Fabrizio Zilibotti, 2006. "Distance to Frontier, Selection, and Economic Growth," Journal of the European Economic Association, MIT Press, vol. 4(1), pages 37-74, 03.
- Zilibotti, Fabrizio & Aghion, Philippe & Acemoglu, Daron, 2006. "Distance to Frontier, Selection, and Economic Growth," Scholarly Articles 4554122, Harvard University Department of Economics.
- Acemoglu, Daron & Aghion, Philippe & Zilibotti, Fabrizio, 2002. "Distance to Frontier, Selection, and Economic Growth," CEPR Discussion Papers 3467, C.E.P.R. Discussion Papers.
- Hausmann, Ricardo & Rodrik, Dani, 2002.
"Economic Development as Self-Discovery,"
Working Paper Series
rwp02-023, Harvard University, John F. Kennedy School of Government.
- Ricardo J. Caballero & Mohamad L. Hammour, 2001.
"Creative Destruction and Development : Institutions, Crises and Restructuring,"
DELTA Working Papers
2001-04, DELTA (Ecole normale supérieure).
- Ricardo J. Caballero & Mohamad L. Hammour, 2000. "Creative Destruction and Development: Institutions, Crises, and Restructuring," NBER Working Papers 7849, National Bureau of Economic Research, Inc.
- Friedman, Eric & Johnson, Simon & Kaufmann, Daniel & Zoido-Lobaton, Pablo, 2000. "Dodging the grabbing hand: the determinants of unofficial activity in 69 countries," Journal of Public Economics, Elsevier, vol. 76(3), pages 459-493, June.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:10455. 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: ()
If references are entirely missing, you can add them using this form.