01695cas a2200241 a 4500 AALejournalIMF006035 230101c9999 xx r poo 0 0eng d 5.00 USD 9781451873412 1018-5941 BD-DhAAL BD-DhAAL Valderrama, Laura. Political Risk Aversion / Laura Valderrama. Washington, D.C. : International Monetary Fund, 2009. 1 online resource (26 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students This paper studies the effect of individual uncertainty on collective decision-making to implement innovation. We show how individual uncertainty creates a bias for the status quo even under irreversible voting decisions, in contrast with Fernandez and Rodrik (1991). Blocking innovation is rooted in the aversion to the potential loss of political clout in future voting decisions. Thus, risk neutral individuals exhibit what we call political risk aversion. Yet individual uncertainty is not all bad news as it may open the door to institutional reform. We endogenize institutional reform and show a non-monotonic relationship between institutional efficiency and the size of innovation. Mode of access: Internet IMF Working Papers; Working Paper ; No. 2009/194 Full text available on IMF http://elibrary.imf.org/view/journals/001/2009/194/001.2009.issue-194-en.xml IMF e-Library