Implementation Under Limited Commitment

Jean Barthélemy and Eric Mengus

Working Papers from HAL

Abstract: We investigate conditions under which a government facing a large set of small private agents can implement its desired outcome when it has only a limited commitment ability to policy actions. We show that, in static contexts, more commitment ability always improves equilibrium outcomes and, in some widely used macro models, an arbitrarily small commitment ability suffices to implement a unique outcome. This contrasts with repeated settings where reputation forces make necessary a more substantial commit- ment ability to obtain a unique outcome and, paradoxically, more commitment ability may lead to worse outcomes and/or to a wider set of equilibria. We derive implications for models of bailouts, inflation bias, and capital taxation.

Keywords: Implementation; limited commitment; policy announcement; policy rules. (search for similar items in EconPapers)
Date: 2021-02-20
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Persistent link: https://EconPapers.repec.org/RePEc:hal:wpaper:hal-03501459

DOI: 10.2139/ssrn.3789635

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