Should Rules be Simple?

Paul Levine ()

No 515, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: The principal argument of the paper is that in an incomplete information setting, where the private sector lacks information on goverment objectives and has to learn about the policy rule by direct observation and estimation, simple `sub-optimal' rules may outperform the more complicated rule that is optimal under complete information. This result is demonstrated by simulations using an overlapping contract rational expectations model. The paper thus provides some formal reasoning to support arguments for simplicity associated with credibility and the need for the private sector to be able to monitor policy.

Keywords: Credibility; Learning; Rational Expectations; Simple Rules (search for similar items in EconPapers)
Date: 1991-03
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Citations: View citations in EconPapers (7)

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Journal Article: Should Rules Be Simple? (1992)
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