IMF Working Papers

Primeron Reforms in a Second-Best Ambiguous Environment: A Case for Gradualism

By S. Nuri Erbas

March 1, 2002

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S. Nuri Erbas Primeron Reforms in a Second-Best Ambiguous Environment: A Case for Gradualism, (USA: International Monetary Fund, 2002) 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

Ambiguity, as opposed to uncertainty, reflects lack of sufficient information about distribution and payoffs of infrequent events. Reforms are infrequent events, undertaken in ambiguous second-best environments where bad reform outcomes are feasible. A general case for the gradualist reform strategy is that it may pay to defer some reforms until relevant information about possible reform outcomes and associated probabilities is revealed, and ambiguity is reduced over time. Gradualism may dominate the big bang strategy, if some of the reforms in a reform sequence are not sure bets and waiting costs do not dominate reversal costs under some information sets forthcoming over time. The relation to Ellsberg's Paradox is discussed. Some cases for and against gradualism are reviewed.

Subject: Economic sectors, Environment, Financial institutions, Financial sector, National accounts, Options, Personal income, Tariffs, Taxes

Keywords: Ambiguity, Big bang, Economic value, Financial sector, Flexibility, Gradualism, Income stream, Options, Personal income, Reform, Reform action, Reform outcome, Reform package, Reform process, Reform strategy, Risk premium, Sequencing, Status quo, Tariffs, Uncertainty, WP

Publication Details

  • Pages:

    56

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2002/050

  • Stock No:

    WPIEA0502002

  • ISBN:

    9781451846980

  • ISSN:

    1018-5941

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