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Committees As Substitutes For Commitment

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  • Alessandro Riboni

Abstract

In this article, policies are negotiated in a committee by playing a dynamic voting game with an endogenous default (or status quo) policy. I show that joining a committee by maintaining a strong agenda setting power is a way for a decision maker to commit to a policy that in absence of committees is not time consistent. The disciplinary role of the endogenous status quo and the heterogeneity of preferences within the committee are two crucial ingredients to obtain this result. As a motivating example, this article focuses on the time consistency of monetary policy. Copyright (2010) by the Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Suggested Citation

  • Alessandro Riboni, 2010. "Committees As Substitutes For Commitment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 51(1), pages 213-236, February.
    • Handle: RePEc:ier:iecrev:v:51:y:2010:i:1:p:213-236
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    Citations

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    Cited by:

    1. Emanuel Kohlscheen, 2010. "Sovereign risk: constitutions rule," Oxford Economic Papers, Oxford University Press, vol. 62(1), pages 62-85, January.
    2. Montoro, Carlos, 2007. "Monetary policy committees and interest rate smoothing," LSE Research Online Documents on Economics 19752, London School of Economics and Political Science, LSE Library.
    3. Alessandro Riboni & Francisco J. Ruge-Murcia, 2008. "The Dynamic (In)Efficiency of Monetary Policy by Committee," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(5), pages 1001-1032, August.
    4. repec:dau:papers:123456789/7716 is not listed on IDEAS
    5. Alessandro Riboni & Facundo Piguillem, 2011. "Dynamic Bargaining over Redistribution in Legislatures," 2011 Meeting Papers 1320, Society for Economic Dynamics.
    6. Hülya Eraslan & Kirill S. Evdokimov & Jan Zápal, 2022. "Dynamic Legislative Bargaining," Springer Books, in: Emin Karagözoğlu & Kyle B. Hyndman (ed.), Bargaining, chapter 0, pages 151-175, Springer.
    7. Jeffrey Campbell & Jacob Weber, 2021. "Discretion rather than rules: Equilibrium uniqueness and forward guidance with inconsistent optimal plans," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 41, pages 243-254, July.
    8. Hahn, Volker, 2014. "An argument in favor of long terms for central bankers," Economics Letters, Elsevier, vol. 122(2), pages 132-135.
    9. Facundo Piguillem & Alessandro Riboni, 2015. "Spending-Biased Legislators: Discipline Through Disagreement," The Quarterly Journal of Economics, Oxford University Press, vol. 130(2), pages 901-949.
    10. Carlos Madeira & João Madeira & Paulo Santos Monteiro, 2023. "The origins of monetary policy disagreement: the role of supply and demand shocks," BIS Working Papers 1118, Bank for International Settlements.
    11. Federico Favaretto & Donato Masciandaro, 2016. "Too Little, Too Late? Monetary Policymaking Inertia and Psychology: A Behavioral Model," BAFFI CAREFIN Working Papers 1617, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
    12. Francesco Salsano, 2005. "Monetary Policy in the Presence Of Imperfect Observability Of The Objectives Of Central Bankers," Birkbeck Working Papers in Economics and Finance 0523, Birkbeck, Department of Economics, Mathematics & Statistics.
    13. Zapal, Jan, 2020. "Simple Markovian equilibria in dynamic spatial legislative bargaining," European Journal of Political Economy, Elsevier, vol. 63(C).
    14. Jeffrey R. Campbell & Thomas B. King & Anna Orlik & Rebecca Zarutskie, 2020. "Issues Regarding the Use of the Policy Rate Tool," Finance and Economics Discussion Series 2020-070, Board of Governors of the Federal Reserve System (U.S.).
    15. Barseghyan, Levon & Coate, Stephen, 2014. "Bureaucrats, voters, and public investment," Journal of Public Economics, Elsevier, vol. 119(C), pages 35-48.
    16. Hahn, Volker, 2016. "Designing monetary policy committees," Journal of Economic Dynamics and Control, Elsevier, vol. 65(C), pages 47-67.
    17. D. Masciandaro, 2019. "What Bird Is That? Central Banking And Monetary Policy In The Last Forty Years," BAFFI CAREFIN Working Papers 19127, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
    18. Yuta Saito, 2022. "A Note on Time Inconsistency and Endogenous Exits from a Currency Union," Games, MDPI, vol. 13(2), pages 1-8, February.
    19. Saito, Yuta, 2020. "A note on exit and inflation bias in a currency union," MPRA Paper 102717, University Library of Munich, Germany.
    20. Dal Bo, Ernesto, 2006. "Committees with supermajority voting yield commitment with flexibility," Journal of Public Economics, Elsevier, vol. 90(4-5), pages 573-599, May.
    21. Francisco Ruge‐Murcia, 2022. "How do central banks make decisions?," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 55(4), pages 1643-1670, November.
    22. Daniel Diermeier & Pohan Fong, 2011. "Legislative Bargaining with Reconsideration," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 126(2), pages 947-985.
    23. Carlos Montoro, 2007. "Why Central Banks Smooth Interest Rates? A Political Economy Explanation," Working Papers 2007-003, Banco Central de Reserva del Perú.
    24. Silvia Console Battilana, 2007. "Uncovered Power: External Agenda Setting, Sophisticated Voting, and Transnational Lobbying," CESifo Working Paper Series 2138, CESifo.

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