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Signaling Commitment by Excessive Spending

Author

Listed:
  • Amihai Glazer

    (Department of Economics, University of California-Irvine)

  • Stef Proost

    (Center for Economic Studies, KULeuven)

Abstract

A policy is often more effective the more confident are economic agents that the current leader (or principal) will adopt the policy. This paper considers uncertainty about the principal's type, interpreted as uncertainty about the probability that he would adopt a project or policy. We show how a principal who highly values the project can signal that valuation by committing to spend a minimum on the project, even if canceling the program would entail waste, Indeed, the amount committed to spend may exceed the project's cost.

Suggested Citation

  • Amihai Glazer & Stef Proost, 2008. "Signaling Commitment by Excessive Spending," Working Papers 070811, University of California-Irvine, Department of Economics.
    • Handle: RePEc:irv:wpaper:070811
    as

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    File URL: https://www.economics.uci.edu/files/docs/workingpapers/2007-08/glazer-11.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Government spending; Signaling; Commitment;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • H43 - Public Economics - - Publicly Provided Goods - - - Project Evaluation; Social Discount Rate

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