Learning Dynamics and the Support for Economic Reforms: Why Good News Can Be Bad
Sweder Van Wijnbergen
Universiteit van Amsterdam; Tinbergen Institute; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)
University of Oxford - Nuffield College
April 23, 2012
Tinbergen Institute 12-043/2
Support for economic reforms has often shown puzzling dynamics: many reforms that started off successfully, lost public support nevertheless. We show that learning dynamics can rationalize this paradox, the reason being that the process of revealing reform outcomes is an example of sampling without replacement. We show that this concept challenges the conventional wisdom that one should start by revealing reform winners. We use our framework to explain why gradual reforms worked well in China (where successes in Special Economic Zones facilitated further reform), while this is much less so for Latin American and Central and Eastern European countries.
Number of Pages in PDF File: 32
Keywords: learning, political economy, reform, sequencing, privatization
JEL Classification: D72, D83, P21working papers series
Date posted: April 25, 2012 ; Last revised: November 10, 2012
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