Towards a Theory of Policy Timing

Klaus Mittenzwei (Norw. Agric. Econ. Research Institute)
David S. Bullock (University of Illinois at Urbana-Champaign)
Klaus Salhofer (Technical University of Munich)
Jukka Kola (University of Helsinki)

Abstract: The paper presents a theory of policy timing that relies on uncertainty and transaction costs to explain the optimal timing and length of policy reforms. Delaying reforms resolves some uncertainty by gaining valuable information and saves transaction costs. Implementing reforms without waiting increases welfare by adjusting domestic policies to changed market parameters. Optimal policy timing is found by balancing the trade-off between delaying reforms and implementing reforms without waiting. Our theory offers an explanation of why countries differ with respect to the length of their policy reforms, and why applied studies often judge agricultural policies to be inefficient.

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