Reforms and confidence

Pertti Haaparanta

doi:10.1016/j.jdeveco.2006.03.002

Reforms and confidence

2007-09-01

0

PRE

AI

DOI：10.1016/j.jdeveco.2006.03.002

Original

Original request for help

Save

Abstract

En 中文

We examine the choice of economic reforms when policymakers have present-biased preferences and can choose to discard information (maintain confidence) to mitigate distortions from excess discounting. The decisions of policymakers and firms are shown to be interdependent. Confident policymakers carry out welfare-improving reforms more often, which increases the probability that firms will invest in restructuring. While policymakers in different countries can be equally irrational, the consequences of bounded rationality are less severe in economies with beneficial initial conditions. We also examine how present-biased preferences influence the choice between big bang versus gradualist reform strategies. Our findings help explain differences in economic reform success in various countries. (C) 2006 Elsevier B.V. All rights reserved.

Keywords:

policy reform

behavioural economics

hyperbolic discounting

confidence

gradualism

Reforms and confidence

Abstract

Journal

Organization