tag:blogger.com,1999:blog-19649274.post7415868519723421611..comments2024-03-27T17:16:12.789+05:30Comments on The Leap Blog: The policy posture as an incomplete contractAjay Shahhttp://www.blogger.com/profile/03835842741008200034noreply@blogger.comBlogger1125tag:blogger.com,1999:blog-19649274.post-48184004455859162712018-03-14T03:59:39.686+05:302018-03-14T03:59:39.686+05:30If we consider policy risk in terms of a probabil...If we consider policy risk in terms of a probability distribution, we have the following obvious inferences:<br /><br />1) Investment for future (like large scale infrastructure) would be more forthcoming if the probability distribution is narrower and tilted towards business friendly policy<br /><br />2) democracies with equally competing ideologies will have the widest distributions. At any assessment point, the hypothetical investor will derive this distribution from mixed distribution rather than a single distribution<br /><br />3) Even in economies with single party rule or prevalence of single party, the distribution may tend to be wider if there are many competing ideologies or personal idiosyncracies with the single party. A good example could be Indian National Congress. It is to be noted that spectrum of diverse interest/idiologies within congress could be not less than combined variance of BJP & Left<br /><br />4) The probability distribution assessed by a foreign investor could be more wider than domestic investor due to information asymmetry. The variance in probability distribution of a foreign investor would not only include possibilities of executive discretion but also increased uncertainty due to lack of relevant information on the part of foreign investor. The later part is obviously going to be low for domestic investor and hence the probability distribution known to the domestic investor would be relatively narrower.<br /><br />Hence, the following type of economies are going to be most attractive for foreign investor:<br /><br />1) Benevolent monarchies with tilt towards desire of attracting investment<br />2) Economies (democracies or monarchies) with lot of institutional controls on executive discretion<br /><br />However, the following types are going to be worst in terms of attractive foreign investment<br /><br />1) Democracies with more than one strong party (for example India) but with equal love for personal popularity and sense of pride in exercising executive discretion<br /><br />2) Democracies with never ending election schedule as populism becomes unavoidable in these economies (like India)<br /><br />3) Democracies driven more by personal cult rather than party ideology. Populism would be a natural by-product of such democracies unless and otherwise there is only one very strong popular leader<br />Anonymousnoreply@blogger.com