Ambiguity, Transparency, and Institutional Strength

July 1, 2004

Preview Citation

Format: Chicago

S. Nuri Erbas Ambiguity, Transparency, and Institutional Strength, (USA: International Monetary Fund, 2004) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Institutional transparency makes future contingencies more easily predictable for investors. Greater transparency can be achieved through vertical and horizontal integration of policy rules, which may result in lower Knightian uncertainty (ambiguity). In a model based on cumulative prospect theory, for a given probability and payoff structure, expected return on investment is higher in more transparent countries; therefore, those countries attract more investment and grow faster than less transparent countries. Lower transparency may result in inherently higher volatility.

Subject: Insurance, Return on investment, Tax incentives

Keywords: Expected return, Horizontal integration, Vertical integration, WP

Publication Details

Pages:

32
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2004/115
Stock No:

WPIEA1152004
ISBN:

9781451853896
ISSN:

1018-5941

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