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Implementation Under Limited Commitment

Author

Listed:
  • Barthelemy, Jean

    (Banque de France)

  • Mengus, Eric

    (HEC Paris)

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.

Suggested Citation

  • Barthelemy, Jean & Mengus, Eric, 2021. "Implementation Under Limited Commitment," HEC Research Papers Series 1412, HEC Paris.
    • Handle: RePEc:ebg:heccah:1412
    DOI: 10.2139/ssrn.3789635
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    Keywords

    Implementation; limited commitment; policy announcement; policy rules.;
    All these keywords.

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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