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Learning dynamics and support for economic reforms : why good news can be bad

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  • van Wijnbergen, Sweder
  • Willems, Tim
Abstract
Support for economic reforms has often shown puzzling dynamics: many reforms that began successfully lost public support. This paper shows that learning dynamics can rationalize this paradox because the process of revealing reform outcomes is an example of sampling without replacement. This concept challenges the conventional wisdom that one should begin by revealing reform winners. It may also lead to situations in which reforms that enjoy both ex ante and ex post majority support will still not come to completion. The framework can be used to explain why gradual reforms worked well in China (where successes in Special Economic Zones facilitated further reform), whereas this was much less the case for Latin American and Central and Eastern European countries.

Suggested Citation

  • van Wijnbergen, Sweder & Willems, Tim, 2014. "Learning dynamics and support for economic reforms : why good news can be bad," Policy Research Working Paper Series 6973, The World Bank.
    • Handle: RePEc:wbk:wbrwps:6973
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    Cited by:

    1. John Morrow & Michael Carter, 2013. "Left, Right, Left: Income, Learning and Political Dynamics," NBER Working Papers 19498, National Bureau of Economic Research, Inc.
    2. Morrow, John & Carter, Michael R., 2017. "Learning about the prospects for mobility: Economic and political dynamics following fundamental policy reform," Journal of Public Economics, Elsevier, vol. 155(C), pages 38-53.
    3. Oscar Calvo-Gonzalez & Barbara Cunha & Riccardo Trezzi, 2017. "When Winners Feel Like Losers: Evidence from an Energy Subsidy Reform," The World Bank Economic Review, World Bank, vol. 31(2), pages 329-350.

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    More about this item

    Keywords

    Enterprise Development&Reform; Children and Youth; Economic Theory&Research; Knowledge for Development; Public Sector Corruption&Anticorruption Measures;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • P21 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Planning, Coordination, and Reform

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