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Cheating for the common good in a Macroeconomic policy game

Francisco Alvarez Gonzalez () and Christophe Deissenberg

Documentos de Trabajo del ICAE from Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico

Abstract: This paper presents a simple repeated-game model of interaction between an optimizing government and the private sector. Two polar cases are considered: (a) the private sector is represented by a single agent; and (b) there is a continuum of heterogenous atomistic private agents. In both cases, the government starts each repetition by making a non-binding announcement about its future actions. The players have complete and perfect information, with one exception: the private agents do not know whether or not the government will act as announced. Thus, each private agent ieither behaves with probability ði as if it trusted the announcement, or plays with probability 1 . ði as a Stackelberg leader. After observing the reaction of the private sector, the government

Keywords: Macroeconomic policy-making; Kydland-Prescott model; time inconsistency; reinforcement learning; reversed Stackelberg games; optimal cheating strategies; reputation; credibility. (search for similar items in EconPapers)
JEL-codes: C69 C79 E5 (search for similar items in EconPapers)
Pages: 43 page
Date: 2001
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