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'''Summary''': The paper studies the choice of workers to invest in changing sectors. Part of their costs of changing sectors is fixed and known. The other part is private and unknown: Ex-ante, workers only know the distribution of types but not their own location within the distribution. As such, they act as if their own cost is the mean of the distribution. In these circumstances, situations may arise in which a majority of workers oppose legislation that would require them to change sectors and instead favor the status quo. However should the legislation pass anyway, the workers would find out where they stand in the distribution. Some portion of workers who changed would then realize that the new legislation is actually better for them than the old status quo and would therefore resist efforts to repeal the law and revert to the old status quo.
'''===Details''': ===There is a two sector perfectly competitive economy, where the sectors produce goods <math>X\,</math> and <math>Y\,</math> respectively. Both sectors use one factor, labour <math>L\,</math>, and have constant returns to scale.
Fernandez Rodrik (1991) - Resistance To Reform Status Quo Bias In The Presence Of Individual Specific Uncertainty (view source)
Revision as of 03:55, 8 March 2011
, 03:55, 8 March 2011→Summary
===Summary===
:<math>X = \frac{L_x}{a_x}\,</math>
The paper then shows that there exists a <math>c_i\,</math> that satifies the condition above, and assuming the functional form above it notes that there are parameter values for which this is true (e.g. <math>a_y = \theta = 1, \tilde{c} = 2, \gamma = 0.5\,</math>).
===Dynamic considerations===
