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The Value of Commitment with Imperfect Observability and Private Information

Giovanni Maggi

RAND Journal of Economics, 1999, vol. 30, issue 4, 555-574

Abstract: The idea that commitment is valuable plays a key role in many economic models. However, Bagwell (1995) has shown that commitment may have no value if there is (even a slight) noise in the observation of the leader's action, thus casting doubt on the notion that commitment has strategic value. Here I reconsider the commitment story in a model where the leader's action is imperfectly observed and the leader has private information, and I examine how it is affected by uncertainty about the leader's type and by the observation noise.

Date: 1999
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Handle: RePEc:rje:randje:v:30:y:1999:i:winter:p:555-574