When Are Stabilizations Delayed? Alesina–Drazen Revisited

Cesar Martinelli
Raul Escorza

Abstract

In an influential article, Alesina and Drazen [1991. Why Are Stabilizations Delayed? American Economic Review 81, 1170–1188] model delay of stabilization as the result of a struggle between political groups supporting reform plans with different distributional implications. In this paper we show that ex ante asymmetries in the costs of delay for the groups will reduce the probability of conflict and will lead to a shorter expected delay. Accurate common information about the cost of delay may lead to no delay at all. In an asymmetric conflict, a wider divergence in the distributional implications of reform will reduce the probability of conflict but will lead to a longer expected delay. We motivate the asymmetric model of delay by reference to Latin American episodes of the 1980s.