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Institution Building without Commitment

Author

Listed:
  • Marco Bassetto
  • Zhen Huo
  • José-Víctor Ríos-Rull

Abstract

We propose a theory of gradualism in the implementation of good policies, suitable for environments featuring time consistency. We downplay the role of the initial period by allowing agents both to wait for future agents to start equilibrium play and to restart the equilibrium by ignoring past history. The allocation gradually transits toward one that weighs both short- and long-term concerns, stopping short of the Ramsey outcome but greatly improving upon Markovian equilibria. We use the theory to account for the slow emergence of both climate policies and the reduction of global tariff rates.

Suggested Citation

  • Marco Bassetto & Zhen Huo & José-Víctor Ríos-Rull, 2024. "Institution Building without Commitment," American Economic Review, American Economic Association, vol. 114(11), pages 3427-3468, November.
    • Handle: RePEc:aea:aecrev:v:114:y:2024:i:11:p:3427-68
    DOI: 10.1257/aer.20201365
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    More about this item

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General

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