Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/212553 
Year of Publication: 
2005
Series/Report no.: 
BOFIT Discussion Papers No. 1/2005
Publisher: 
Bank of Finland, Institute for Economies in Transition (BOFIT), Helsinki
Abstract: 
We examine the choice of economic reforms when policymakers have present-biased preferences and can choose to discard information (maintain confidence) to mitigate distortions from excess discounting.The decisions of policymakers and firms are shown to be interdependent.Confident policymakers carry out welfare-improving reforms more often, which increases the probability that firms will invest in restructuring.While policymakers in different countries can be equally irrational, the consequences of bounded rationality are less severe in economies with beneficial initial conditions.We also examine how present-biased preferences influence the choice between big bang versus gradualist reform strategies.Our findings help explain differences in economic reform success in various countries.
Subjects: 
Policy reform
behavioural economics
hyperbolic discounting
confidence
gradualism
Persistent Identifier of the first edition: 
ISBN: 
951-686-988-2
Document Type: 
Working Paper

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