Signaling Commitment by Excessive Spending

Amihai Glazer and Stef Proost

No 70811, Working Papers from University of California-Irvine, Department of Economics

Abstract: A policy is often more effective the more confident are economic agents that the current leader (or principal) will adopt the policy. This paper considers uncertainty about the principal's type, interpreted as uncertainty about the probability that he would adopt a project or policy. We show how a principal who highly values the project can signal that valuation by committing to spend a minimum on the project, even if canceling the program would entail waste, Indeed, the amount committed to spend may exceed the project's cost.

Keywords: Government spending; Signaling; Commitment (search for similar items in EconPapers)
JEL-codes: D82 H43 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ppm
Date: 2008-02
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Persistent link: http://EconPapers.repec.org/RePEc:irv:wpaper:070811

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