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The Value of Commitment with Imperfect Observability and Private Information

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  • Giovanni Maggi

Abstract

The idea that commitment is valuable plays a key role in many economic models. However, Bagwell (1995) has shown that commitment may have no value if there is (even a slight) noise in the observation of the leader's action, thus casting doubt on the notion that commitment has strategic value. Here I reconsider the commitment story in a model where the leader's action is imperfectly observed and the leader has private information, and I examine how it is affected by uncertainty about the leader's type and by the observation noise.

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  • Giovanni Maggi, 1999. "The Value of Commitment with Imperfect Observability and Private Information," RAND Journal of Economics, The RAND Corporation, vol. 30(4), pages 555-574, Winter.
    • Handle: RePEc:rje:randje:v:30:y:1999:i:winter:p:555-574
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