Economic Strategy

Economic Strategy

A Comparative Analysis of Shock Therapy and Gradual Reforms in Fuel Subsidies: The Significance of Institutional and Organizational Adaptability

Document Type : Original Article

Authors
1 Department of Economics, Faculty of Economics, Management and Social Sciences. Shiraz University
2 Assistant Professor, Department of Economics, Faculty of Humanities, Yasuj University.
3 Shiraz University
Abstract
The world's experience indicates that institutional reforms based on the literature of "transition" typically revolve around two approaches: shock therapy and gradual reforms. Russia and China are examples of countries that have employed these two approaches respectively, with evidence suggesting that Russia faced failure while China achieved success. Price liberalization is one of the institutional reforms that can be implemented based on these approaches. Iran is among the first countries to implement institutional reforms to achieve development. Despite the importance of the topic in the research literature, there has been limited comparative analysis of these two approaches in Iran. Institutions and organizations are crucial in analyzing shock therapy and gradual reforms. This research aims to compare the effectiveness of the shock therapy and gradual reform approaches by emphasizing the importance of "institutional and organizational adaptability" in the context of two experiences of fuel subsidies during the presidencies of Mahmoud Ahmadinejad and Hassan Rouhani, using the game theory method. The research findings indicate that Ahmadinejad focused more on the gradual reforms approach, attempting to implement the plan by emphasizing the importance of adaptability between formal organization and informal institution, creating organizational harmony and balance. In contrast, Rouhani, disregarding the mentioned importance, implemented the plan, resulting in a lack of alignment between the organization and the institution. Empirical evidence and research findings demonstrate the effectiveness of gradual reforms compared to the shock therapy approach
Keywords

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  • Receive Date 16 January 2024
  • Revise Date 23 April 2024
  • Accept Date 24 May 2024