Why Do Reforms Occur in Crises Times?
37 Pages Posted: 16 Jun 2016
Date Written: June 2016
Structural reforms, whereby organized groups lose their power to extract rents, tend to occur in bad times rather than during prosperous times. We present a model where rent-seeking leads to economic decline, which, in turn, will make a future reform inevitable when times will be bad enough. Furthermore, we show that in the case of trade liberalization – a prime example of structural reform – there is strong empirical evidence that reforms are induced by severe crises.
Keywords: Structural Reforms; Trade Liberalization; Crises; Tragedy of Commons; Preemption Games.
JEL Classification: G01,P11, C73, F13
Suggested Citation: Suggested Citation