Ambiguity, Transparency, and Institutional Strength

Author/Editor:

S. Nuri Erbas

Publication Date:

July 1, 2004

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

Institutional transparency makes future contingencies more easily predictable for investors. Greater transparency can be achieved through vertical and horizontal integration of policy rules, which may result in lower Knightian uncertainty (ambiguity). In a model based on cumulative prospect theory, for a given probability and payoff structure, expected return on investment is higher in more transparent countries; therefore, those countries attract more investment and grow faster than less transparent countries. Lower transparency may result in inherently higher volatility.

Series:

Working Paper No. 2004/115

Subject:

Insurance Return on investment Tax incentives

English

Publication Date:

July 1, 2004

ISBN/ISSN:

9781451853896/1018-5941

Stock No:

WPIEA1152004

Pages:

32

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