Learning Dynamics and the Support for Economic Reforms: Why Good News Can Be Bad

Tinbergen Institute 12-043/2

32 Pages Posted: 25 Apr 2012 Last revised: 10 Nov 2012

See all articles by Sweder van Wijnbergen

Sweder van Wijnbergen

Universiteit van Amsterdam; Tinbergen Institute; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Tim Willems

University of Oxford - Nuffield College of Medicine

Date Written: April 23, 2012

Abstract

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.

Keywords: learning, political economy, reform, sequencing, privatization

JEL Classification: D72, D83, P21

Suggested Citation

van Wijnbergen, Sweder and Willems, Tim, Learning Dynamics and the Support for Economic Reforms: Why Good News Can Be Bad (April 23, 2012). Tinbergen Institute 12-043/2. Available at SSRN: https://ssrn.com/abstract=2044775 or http://dx.doi.org/10.2139/ssrn.2044775

Sweder Van Wijnbergen (Contact Author)

Universiteit van Amsterdam ( email )

Roetersstraat 11
Amsterdam, 1018 WB
Netherlands
+31 20 525 4011 / 4203 (Phone)
+31-35-624 91 82 (Fax)

Tinbergen Institute

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Tim Willems

University of Oxford - Nuffield College of Medicine ( email )

New Road
Oxford, OX1 1NF
United Kingdom

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