Resistance to Reform: Status Quo Bias in the Presence of Individual-Specific Uncertainty

Raquel Fernandez and Dani Rodrik

American Economic Review, 1991, vol. 81, issue 5, 1146-55

Abstract: Why do governments so often fail to adopt policies that economists consider to be efficiency-enhancing? The authors answer to this question relies on uncertainty regarding the distribution of gains and losses from reform. They show that there is a bias toward the status quo (and, hence, against efficiency-enhancing reforms) whenever some of the individual gainers and losers from reform cannot be identified beforehand. There are reforms which, once adopted, will receive adequate political support but would have failed to carry the day ex ante. The argument does not rely on risk aversion, irrationality, or hysteresis due to sunk costs. Copyright 1991 by American Economic Association.

Date: 1991
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