Non-Cooperative and Cooperative Policy Reforms Under Uncertainty Spillovers

25 Pages Posted: 3 Mar 2017

See all articles by Carsten Hefeker

Carsten Hefeker

HWWA Institute of International Economics; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Michael Neugart

Technical University of Darmstadt

Date Written: January 14, 2017

Abstract

When countries need to implement costly economic policy reforms, these often imply uncertainties about their effectiveness for the home country and their spillovers to other countries. We develop a model to show that under these circumstances countries implement too few or too many policy reforms. From a social perspective, too many reforms follow if the spillover effects of reforms become sufficiently uncertain. Since centralization of policies to correct inefficient policies is often not possible, we look for alternative instruments that can restore the efficient level of reforms. We compare subsidizing reform efforts with insuring against bad outcomes, and argue that subsidies are advantageous in terms of requiring less information for implementation.

Keywords: policy reforms, spillovers, policy uncertainty, free-riding, subsidy, insurance

JEL Classification: F55, H70, O30

Suggested Citation

Hefeker, Carsten and Neugart, Michael, Non-Cooperative and Cooperative Policy Reforms Under Uncertainty Spillovers (January 14, 2017). CESifo Working Paper Series No. 6329, Available at SSRN: https://ssrn.com/abstract=2925752

Carsten Hefeker (Contact Author)

HWWA Institute of International Economics ( email )

Heimhuder Strasse 71
20347 Hamburg, DE Hamburg 20148
Germany

CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Poschinger Str. 5
Munich, DE-81679
Germany

Michael Neugart

Technical University of Darmstadt ( email )

Hochschulstraße 1
Darmstadt, 64289
Germany

HOME PAGE: http://www.vwl3.wi.tu-darmstadt.de

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