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Implementation Under Limited Commitment

Author

Listed:
  • Jean Barthelemy

    (Centre de recherche de la Banque de France - Banque de France)

  • Eric Mengus

    (HEC Paris - Ecole des Hautes Etudes Commerciales)

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

  • Jean Barthelemy & Eric Mengus, 2021. "Implementation Under Limited Commitment," Working Papers hal-03501459, HAL.
    • Handle: RePEc:hal:wpaper:hal-03501459
    DOI: 10.2139/ssrn.3789635
    as

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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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