Resistance to Reform: Reconsidering the Role of Individual-Specific Uncertainty

Abstract

Individual-specific uncertainty may increase the chances of reform being enacted and sustained. Reform may be more likely to be enacted because a majority of agents might end up losing little from reform and a minority gaining a lot. Under certainty, reform would therefore be rejected, but it may be enacted with uncertainty because those who end up losing believe that they might be among the winners. Reform may be more likely to be sustained because, in a realistic setting, reform will increase the incentives of agents to move into those economic activities that benefit. Agents who respond to these incentives will vote to sustain reform in future elections, even if they would have rejected reform under certainty. These points are made using the trade-model of Fernandez and Rodrik (AER, 1991).

Keywords: Status-quo bias, bias against reform, individual-specific uncertainty

JEL Classification: D72, D74, D81