Promises, Promises: Credible Policy Reform Via Signaling

35 Pages Posted: 27 Jun 2004 Last revised: 11 Aug 2010

See all articles by Dani Rodrik

Dani Rodrik

Harvard University - Harvard Kennedy School (HKS); Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Date Written: May 1988

Abstract

Empirical experience and theory both suggest that policy reforms can be aborted or reversed if they lack sufficient credibility, One reason for such credibility problems is the legitimate doubt regarding how serious the government really is about :he reform process. This paper considers a framework in which the private sector is unable to distinguish between a genuinely reformist government and its nemesis, a government which simply feigns interest in reform because it is a precondition for foreign assistance The general conclusion is that the rate at which reforms are introduced may serve to convey the government's future intentions, and hence act as a signal of its "type". More specifically, credible policy reform may require going overboard: the government will have to go much farther than it would have chosen to in the absence of the credibility problem.

Suggested Citation

Rodrik, Dani, Promises, Promises: Credible Policy Reform Via Signaling (May 1988). NBER Working Paper No. w2600. Available at SSRN: https://ssrn.com/abstract=428348

Dani Rodrik (Contact Author)

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