The role of beliefs and ideologies in the political economy of reforms

In this paper, we try to understand the persistence of potentially biased beliefs, with an emphasis on beliefs that are potentially biased against the market economy. We highlight two mechanisms. First, some interest groups may have an interest in manipulating beliefs in a given direction, regardless of the true parameters that govern the evolution of the economy. In particular, they do not need to have private information about these parameters to have an incentive to manipulate beliefs. Second, people who have negative beliefs ex-ante about the market economy are more likely to select occupations that are sheltered from competitive pressure. To the extent that some of these occupations (like teaching) have a disproportionate influence on the formation of beliefs, that is likely to generate a systematic bias in the evolution of these beliefs.