Disagreement and Learning About Reforms

Abstract

When it comes to economic reforms in developing countries, many economists agree on broad objectives (such as fostering outward orientation). Broad objectives, however, can be pursued in many different ways, and policy experimentation is often indispensable for learning which alternative works locally. We propose a simple model to study this societal learning process. The model explores the role of disagreeing beliefs about “what works”. It suggests that this type of disagreement can stall the societal learning process and cause economic stagnation. Interestingly, this can happen even if everybody knows that Pareto-improving reforms do exist. Our analysis is motivated by the empirical observation of a negative relationship between disagreement and economic growth among poorer countries.

Keywords: Disagreement, experimentation, societal learning, development policy, gridlock

JEL Classification: D72, D78, D83, O11