Bounded Rationality and Policy Diffusion: Social Sector Reform in Latin America

By Manzetti, Luigi | Americas Quarterly, Winter 2008 | Go to article overview

Bounded Rationality and Policy Diffusion: Social Sector Reform in Latin America


Manzetti, Luigi, Americas Quarterly


Bounded Rationality and Policy Diffusion: Social Sector Reform in Latin America by Kurt Weyland Princeton University Press, 2006, English, Softcover, 238 pages

REVIEWED BY LUIGI MANZETTI

Kurt Weyland, a Professor of Government at the University of Texas at Austin, is one of the leading experts on Latin American political economy. In his latest book, Bounded Rationality and Policy Diffusion: Social Sector Reform in Latin America , he challenges established theories on why and how similar social policies spread so quickly among governments in the 1990s.

Looking in detail at the pension and health care reforms in Bolivia, Brazil, Chile, El Salvador, and Peru, Weyland argues that Latin American policymakers responsible for the reforms did not use sophisticated cost-benefit analyses when making crucial decisions regarding social policies. Nor were they-as many have asserted-captive to the International Monetary Fund (IMF) and the World Bank. Instead, according to Weyland, Latin American politicians' thinking was shaped by models that appeared convincing and successful.

Those models came mostly, if not exclusively, from the region. Only when a neat, successful model was not available as a guide did domestic interests and considerations weigh heavily on the decision-making process.

The central question examined by Weyland is why some countries adopt a policy or a set of policies applied elsewhere, a practice known as "policy diffusion." As Weyland points out, countries with vastly different socioeconomic characteristics chose similar policy innovations during the 1990s. In explaining this, he draws from the "bounded rationality" thesis pioneered by Herbert Simon, who argued that decision-making processes are limited by short-time horizons and information. Within these limits, leaders use simplified models or rules of thumb to weigh options.

Elaborating upon the concept, Weyland borrowed insights developed in cognitive psychology to argue that leaders' selection of models depends on examples and conclusions that are immediately available to them. Those examples can become "shortcuts" for decision-makers and facilitate "the processing of overabundant information, by focusing-and thus limiting-people's attention and by supplying simple inferential rules that lower computational costs."

Rules of Thumb

However, the downside of applying these rules of thumb is that they can create biases and distort conclusions that people draw from evidence. Thus, while political leaders may follow rational processes for calculating op tions, that rationality is based upon very limited, highly selective and subjective information. As a result, bold, successful experiments may have a disproportionate influence on the final decision.

Weyland notes that Bolivia, Brazil, Chile, El Salvador, and Peru all embarked upon major pension and health care reforms within a relatively short period of time. Typically, these policy changes followed the hard-core reforms of deregulation, privatization, tax reform, and trade and financial liberalization. Methodologically, he probes this argument using process tracing. This method employs a large number of observations, which would probably be ignored in standard statistical analyses that identify links between causes and outcomes. In Chapter 2, Weyland not only provides us with a rich and thorough description of the analytical strengths of the bounded rationality argument, but he also compares alternative explanations: external pressure, normative appeal and rational learning.

The external-pressure explanation of policy diffusion derives from the fact that developing country governments are considered too weak and cash-starved to resist lobbying by international financial institutions (IFIs). The normative explanation is a softer version of external pressure. According to this view, IFIs use moral persuasion and capitalize on the desire of governments to enhance their legitimacy by adopting the most up to-date policy models. …

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