to explain why even when there is quite widespread perception that carrying out reforms in a given
sector would be in the general interest, action could be delayed or blocked altogether.13 A common
explanation for why potentially beneficial reforms could be blocked for long times there is the role
of lobbying in the policy-making process. Such arguments have been first put forward in Olson
(1971). According to this explanation, reforms, even when they can potentially benefit a majority
of citizens, often produce losses to particular groups in the society. These groups, even if
comprising a minority, could be highly motivated to organize resistance to reforms and may face
lower costs to structure themselves into organized pressure groups, thus prevailing in the political
arena over large, dispersed groups in favour of reforms. Lobbies can explain quite successfully
why reforms aimed at reducing protection to given sectors of the economy (e.g., trade protection,
regulation of industries,...) are blocked.14 However, arguments based on lobbying are probably
less suited to explain resistance to reforms with effects on all sectors of the economy (e.g., labour
market reforms, tax reforms).
An alternative political economy explanation for why reforms could be blocked relies on uncertain
reform payoffs at the individual level (Fernandez and Rodrik (1991)). When individuals are
uncertain about whether they will benefit from a given reform, there could be ex-ante a majority of
individuals in favour of blocking the reform even when ex-post the reform benefits a majority of
citizens. Although it is quite difficult to assess the empirical relevance of this argument, it provides
an explanation for the observed case of reforms that, after being blocked for long times, find
gradual support among the public once, for some reason, the reform process is put in place.
An explanation for reform deadlocks that has received large attention by both academic
economists and policy makers is based on uneven distribution of reform payoffs over time coupled
with short-sightedness of governments.15 In the presence of short-run costs from reforms and
reforms gains materialising only in the long run, politicians that base their decisions on a short
time horizon (because, for instance, uncertain about being re-elected), may opt not to carry out
welfare-enhancing reforms. The fact that the reform gains could be delayed in time could in turn
13 However, as stressed by several academicians and policy-makers, stalemates in the implementation of
reforms could simply be related to technical uncertainty. Politicians may disagree on the need for reforms and on
which type of measures are better suited to tackle the problem at stake. Such disagreement may result into
substantial delays. Rodrik (1994) quotes the health care reform proposed by the Clinton presidency as an illustrative
example of reform on which disagreement was related, among other things, to uncertainty on whether the proposed
one was technically the best solution. See also Sachs (1994) for anecdotal evidence on the frequent disagreement
within governments on how to proceed with economic reforms in countries facing macroeconomic crises.
14 See Grossman and Helpman (2002) for theory and empirical evidence on the idea that lobbies can explain the
presence and persistence of protection.
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