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Valderrama, Laura.

Political Risk Aversion Laura Valderrama. [electronic resource] / Laura Valderrama. - Washington, D.C. : International Monetary Fund, 2009. - 1 online resource (26 p.) - IMF Working Papers; Working Paper ; No. 09/194 . - IMF Working Papers; Working Paper ; No. 09/194 .

This paper studies the effect of individual uncertainty on collective decision-making to implement innovation. We show how individual uncertainty creates a bias for the status quo even under irreversible voting decisions, in contrast with Fernandez and Rodrik (1991). Blocking innovation is rooted in the aversion to the potential loss of political clout in future voting decisions. Thus, risk neutral individuals exhibit what we call political risk aversion. Yet individual uncertainty is not all bad news as it may open the door to institutional reform. We endogenize institutional reform and show a non-monotonic relationship between institutional efficiency and the size of innovation.

ISBN: 1451873417 : 18.00 USD

ISSN: 1018-5941

Standard No.: 10.5089/9781451873412.001 doi

Subjects--Topical Terms:
Criteria for Decision-Making Under Risk and Uncertainty
Dynamic Voting
Expropriation
Individual Uncertainty
Innovation
Institutional Reform

Subjects--Geographic Terms:
China, People's Republic of