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FUTURE POLICY UNCERTAINTY, EFFORT, AND THE RESPONSIVENESS OF OUTPUT TO MARKET SIGNALS
Author(s) -
Aizenman Joshua,
Isard Peter
Publication year - 1993
Publication title -
bulletin of economic research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.227
H-Index - 29
eISSN - 1467-8586
pISSN - 0307-3378
DOI - 10.1111/j.1467-8586.1993.tb00572.x
Subject(s) - economics , productivity , purchasing , relevance (law) , microeconomics , production (economics) , public economics , industrial organization , macroeconomics , operations management , law , political science
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.