FUTURE POLICY UNCERTAINTY, EFFORT, AND THE RESPONSIVENESS OF OUTPUT TO MARKET SIGNALS

Joshua Aizenman, Peter Isard

Research output: Contribution to journalArticlepeer-review

Abstract

This paper analyses the consequences of future policy uncertainty on the allocation of effort in an economy undergoing reforms. We demonstrate that uncertainty regarding future tax policies may reduce present effort, and will also reduce the responsiveness of output to productivity shocks and other market signals. The discussion has relevance for cases in which privatization will make present managers of firms the future owners and residual claimants to future output. An expectation that the purchasing price of the firm will have a positive relationship to present output will induce the manager to reduce contemporaneous effort, and uncertainty regarding the relationship will also depress present managerial effort.

Original languageEnglish
Pages (from-to)305-313
Number of pages9
JournalBulletin of Economic Research
Volume45
Issue number4
DOIs
StatePublished - 1 Jan 1993
Externally publishedYes

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