The Design of Reform Packages Under Uncertainty

Paper presented at the International Conference on The Theory of Firm and China's Economic Reform, Beijing 1996

Posted: 2 May 1997

See all articles by Mathias Dewatripont

Mathias Dewatripont

Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES); Centre for Economic Policy Research (CEPR)

Gérard Roland

University of California, Berkeley - Department of Economics; Centre for Economic Policy Research (CEPR)

Date Written: Undated

Abstract

We present a model of large-scale economic reforms, modeled on the transition process in Eastern Europe, with aggregate and individual uncertainty concerning the outcome of reforms. The government is assumed to choose the speed and sequencing of reforms. We compare big-bang strategies with gradualist reform packages. We show that (i) gradualist reform packages may be easier to get started, (ii) optimal sequencing of reforms should aim at creating constituencies for further reforms, and (iii) gradualism may generate a higher investment response because of a lower option value of waiting than a big-bang approach would have.

JEL Classification: P21

Suggested Citation

Dewatripont, Mathias and Roland, Gérard, The Design of Reform Packages Under Uncertainty (Undated). Paper presented at the International Conference on The Theory of Firm and China's Economic Reform, Beijing 1996, Available at SSRN: https://ssrn.com/abstract=8759

Mathias Dewatripont (Contact Author)

Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES) ( email )

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Centre for Economic Policy Research (CEPR)

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Gérard Roland

University of California, Berkeley - Department of Economics ( email )

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Berkeley, CA 94720-3880
United States
510-642-4321 (Phone)
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Centre for Economic Policy Research (CEPR)

London
United Kingdom

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