Equilibrium and government commitment

Marco Bassetto

No 624, Working Papers from Federal Reserve Bank of Minneapolis

Abstract: How should a government use the power to commit to ensure a desirable equilibrium outcome? In this paper, I show a misleading aspect of what has become a standard approach to this question, and I propose an alternative. I show that the complete description of an optimal (indeed, of any) policy scheme requires outlining the consequences of paths that are often neglected. The specification of policy along those paths is crucial in determining which schemes implement a unique equilibrium and which ones leave room for multiple equilibria that depend on the expectations of the private sector.

Keywords: Equilibrium; (Economics) (search for similar items in EconPapers)
Date: 2002
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Citations: View citations in EconPapers (5)

Published in Published In: Journal of Economic Theory> (Vol. 124, No. 1, September 2005, pp. 79-105)

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Journal Article: Equilibrium and government commitment (2005)
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