DP860 The Design of Reform Packages Under Uncertainty
| Author(s): | Mathias Dewatripont, Gérard Roland |
| Publication Date: | November 1993 |
| Keyword(s): | Political Economy, Sequencing, Transition |
| JEL(s): | H89, P50 |
| Programme Areas: | International Macroeconomics |
| Link to this Page: | cepr.org/active/publications/discussion_papers/dp.php?dpno=860 |
We present a model of large-scale economic reforms, modelled 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 1) gradualist reform packages may be easier to get started; 2) optimal sequencing of reforms should aim at creating constituencies for further reforms; and 3) gradualism may reduce