Book contents
- Frontmatter
- Contents
- List of Figures
- List of Tables
- Preface
- PART 1 POLITICAL POWER AND ECONOMIC ANALYSIS
- PART 2 IDEOLOGY, PRESCRIPTION, AND POLITICAL POWER COEFFICIENTS
- PART 3 ANALYSIS OF SPECIFIC STRUCTURES
- 10 The Political Economy of Commodity Market Intervention
- 11 The Political Economy of Public Research and Development
- 12 Political-Economic Analysis of Redistributive Policies and Public Good Investments
- 13 Interest Groups, Coalition Breaking, and Productive Policies
- 14 Policy Reform and Compensation
- 15 Political-Economic Analysis of Land Reform
- 16 Political-Economic Analysis of Water Resource Systems
- 17 The Political Economy Lens on Quality and Public Standard Regulations
- 18 Political-Economic Analysis in Transition Economies
- 19 The Power of Bureaucracies: The European Commission and EU Policy Reforms
- PART 4 EMPIRICAL APPLICATIONS OF POLITICAL POWER ESTIMATION
- References
- Index
14 - Policy Reform and Compensation
Published online by Cambridge University Press: 05 June 2012
- Frontmatter
- Contents
- List of Figures
- List of Tables
- Preface
- PART 1 POLITICAL POWER AND ECONOMIC ANALYSIS
- PART 2 IDEOLOGY, PRESCRIPTION, AND POLITICAL POWER COEFFICIENTS
- PART 3 ANALYSIS OF SPECIFIC STRUCTURES
- 10 The Political Economy of Commodity Market Intervention
- 11 The Political Economy of Public Research and Development
- 12 Political-Economic Analysis of Redistributive Policies and Public Good Investments
- 13 Interest Groups, Coalition Breaking, and Productive Policies
- 14 Policy Reform and Compensation
- 15 Political-Economic Analysis of Land Reform
- 16 Political-Economic Analysis of Water Resource Systems
- 17 The Political Economy Lens on Quality and Public Standard Regulations
- 18 Political-Economic Analysis in Transition Economies
- 19 The Power of Bureaucracies: The European Commission and EU Policy Reforms
- PART 4 EMPIRICAL APPLICATIONS OF POLITICAL POWER ESTIMATION
- References
- Index
Summary
Introduction
Inefficient policies, as demonstrated in various chapters in this book, exist in every country of the world. To move toward a more efficient policy system, that is, to introduce policy reform, almost always implies gains for some groups in society and losses for other groups. The standard economic prescription is that if the gains for some groups outweigh the losses of other groups, it is socially optimal to implement the reforms since it will increase total welfare. The idea behind this argument is that the gains of those who win are larger than what is needed to compensate the losers from reform, and society as a whole gains. Hence, compensation is an essential element of the economics of policy reform.
Compensation is also crucial in the political economy of policy reform. Those who lose from reform may oppose the reforms if they expect that (full) compensation will not take place. The latter may be the case when governments lack the credibility to effectively provide compensation when the reform effects emerge (Swinnen and de Gorter 2002; Acemoglu and Robinson 2006); when governments only offer partial compensation to mitigate political opposition sufficient to implement the reforms (Foster and Rausser 1995); when local institutions prevent the creation of effective compensation schemes (Swinnen 1997); or when there is uncertainty on the effect of the reforms – and thus on who will be the losers and gainers of the reforms (Fernandez and Rodrik 1991).
- Type
- Chapter
- Information
- Political Power and Economic PolicyTheory, Analysis, and Empirical Applications, pp. 258 - 281Publisher: Cambridge University PressPrint publication year: 2011