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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.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1468-2354.2009.00577.x
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Bibliographic Info

Article provided by Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association in its journal International Economic Review.

Volume (Year): 51 (2010)
Issue (Month): 1 (02)
Pages: 213-236

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Handle: RePEc:ier:iecrev:v:51:y:2010:i:1:p:213-236

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References

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  1. Marco Battaglini & Stephen Coate, 2008. "A Dynamic Theory of Public Spending, Taxation, and Debt," American Economic Review, American Economic Association, vol. 98(1), pages 201-36, March.
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  6. James Bullard & Christopher J. Waller, 2002. "Central bank design in general equilibrium," Working Papers 1998-002, Federal Reserve Bank of St. Louis.
  7. Anne Sibert, 1999. "Monetary Policy Committees: Individual and Collective Reputations," CESifo Working Paper Series 226, CESifo Group Munich.
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  10. Torsten Persson & Guido Tabellini, 1999. "Political Economics and Public Finance," NBER Working Papers 7097, National Bureau of Economic Research, Inc.
  11. Marco Bassetto, 1999. "Political economy of taxation in an overlapping-generations economy," Discussion Paper / Institute for Empirical Macroeconomics 133, Federal Reserve Bank of Minneapolis.
  12. Blinder, Alan S & Morgan, John, 2005. "Are Two Heads Better than One? Monetary Policy by Committee," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(5), pages 789-811, October.
  13. Barro, Robert J. & Gordon, David B., 1983. "Rules, discretion and reputation in a model of monetary policy," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 101-121.
  14. 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.
  15. Fischer, Stanley, 1980. "Dynamic inconsistency, cooperation and the benevolent dissembling government," Journal of Economic Dynamics and Control, Elsevier, vol. 2(1), pages 93-107, May.
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  17. Thomas Romer & Howard Rosenthal, 1978. "Political resource allocation, controlled agendas, and the status quo," Public Choice, Springer, vol. 33(4), pages 27-43, December.
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  20. Belden, Susan, 1989. "Policy Preferences of FOMC Members as Revealed by Dissenting Votes," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 21(4), pages 432-41, November.
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Citations

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Cited by:
  1. Emanuel Kohlscheen, 2006. "Sovereign Risk: Constitutions Rule," 2006 Meeting Papers 25, Society for Economic Dynamics.
  2. 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.
  3. Facundo Piguillem & Alessandro Riboni, 2012. "Dynamic Bargaining over Redistribution in Legislatures," EIEF Working Papers Series 1206, Einaudi Institute for Economics and Finance (EIEF), revised Dec 2012.
  4. Alessandro Riboni & Francisco Ruge-Murcia, 2006. "The Dynamic (In)efficiency of Monetary Policy by Committee," 2006 Meeting Papers 206, Society for Economic Dynamics.
  5. Hahn, Volker, 2014. "An argument in favor of long terms for central bankers," Economics Letters, Elsevier, vol. 122(2), pages 132-135.
  6. Carlos Montoro, 2007. "Monetary policy committees and interest rate smoothing," LSE Research Online Documents on Economics 19752, London School of Economics and Political Science, LSE Library.
  7. Carlos Montoro, 2007. "Monetary Policy Committees and Interest Rate Smoothing," CEP Discussion Papers dp0780, Centre for Economic Performance, LSE.
  8. Daniel Diermeier & Pohan Fong, 2011. "Legislative Bargaining with Reconsideration," The Quarterly Journal of Economics, Oxford University Press, vol. 126(2), pages 947-985.
  9. Facundo Piguillem & Alessandro Riboni, 2013. "Spending Biased Legislators - Discipline Through Disagreement," EIEF Working Papers Series 1317, Einaudi Institute for Economics and Finance (EIEF), revised Jul 2013.
  10. Volker Hahn, 2012. "Designing Monetary Policy Committees," Working Paper Series of the Department of Economics, University of Konstanz 2012-23, Department of Economics, University of Konstanz.
  11. Silvia Console Battilana, 2007. "Uncovered Power: External Agenda Setting, Sophisticated Voting, and Transnational Lobbying," CESifo Working Paper Series 2138, CESifo Group Munich.
  12. Carlos Montoro, 2007. "Why Central Banks Smooth Interest Rates? A Political Economy Explanation," Working Papers 2007-003, Banco Central de Reserva del Per├║.
  13. 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.

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