Pre-Commitment Mechanism and Policy Credibility in African Trade Reform

Sylvain Boko and Harvey Lapan

Staff General Research Papers Archive from Iowa State University, Department of Economics

Abstract: In the absence of a binding pre-commitment mechanism, a government has an incentive to renege on announced policy. This is a well-established result in the literature. The paper applies this theory to tariff policy by developing a two-game model to analyze the credibility of government tariff reform announcements. The pre-commitment solution is subgame-imperfect; therefore, government's announcement of tariff reforms is time-inconsistent. Using a sample of African countries operating under IMF structural adjustment programs, the study finds only weak evidence that countries implemented their announced tariff reforms. However, SAP agreements seem to enhance private sector confidence in government reforms.

Date: 2001-02-01
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Published in Review of Development Economics, February 2001, vol. 5, pp. 25-39

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Journal Article: Pre‐commitment Mechanism and Policy Credibility in African Trade Reform (2001)
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Persistent link: https://EconPapers.repec.org/RePEc:isu:genres:5245

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