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Credible Commitments and Investment: Does Opportunistic Ability or Incentive Matter?


  • Dino Falaschetti


Private investment increases in a cross-country panel when formal institutions (e.g., term limits) do not constrain executives' planning horizons. This evidence is consistent with institutions that encourage reputation-building checking opportunistic incentives and extends evidence from domestic public choice applications to an international political economy setting. In addition, investment exhibits a nonmonotonic relationship with a polity's veto players. This relationship may reflect trade-offs between constituents' monitoring-capacity and agents' opportunistic ability. It may also highlight a channel through which lock-in effects retard neoclassical convergence and thus motivate different normative prescriptions than those emerging from contributions where institutions and real activity must exhibit a monotonic relationship. (JEL D72, D78, E61) Copyright 2003, Oxford University Press.

Suggested Citation

  • Dino Falaschetti, 2003. "Credible Commitments and Investment: Does Opportunistic Ability or Incentive Matter?," Economic Inquiry, Western Economic Association International, vol. 41(4), pages 660-674, October.
  • Handle: RePEc:oup:ecinqu:v:41:y:2003:i:4:p:660-674

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    References listed on IDEAS

    1. Abbink, Klaus & Abdolkarim Sadrieh, 1995. "RatImage - research Assistance Toolbox for Computer-Aided Human Behavior Experiments," Discussion Paper Serie B 325, University of Bonn, Germany.
    2. Mark Isaac, R. & McCue, Kenneth F. & Plott, Charles R., 1985. "Public goods provision in an experimental environment," Journal of Public Economics, Elsevier, vol. 26(1), pages 51-74, February.
    3. R. Isaac & James Walker & Susan Thomas, 1984. "Divergent evidence on free riding: An experimental examination of possible explanations," Public Choice, Springer, vol. 43(2), pages 113-149, January.
    4. GĂ©rard P. Cachon & Colin F. Camerer, 1996. "Loss-Avoidance and Forward Induction in Experimental Coordination Games," The Quarterly Journal of Economics, Oxford University Press, vol. 111(1), pages 165-194.
    5. Van Huyck John B. & Battalio Raymond C. & Beil Richard O., 1993. "Asset Markets as an Equilibrium Selection Mechanism: Coordination Failure, Game Form Auctions, and Tacit Communication," Games and Economic Behavior, Elsevier, vol. 5(3), pages 485-504, July.
    6. Bagnoli, Mark & McKee, Michael, 1991. "Voluntary Contribution Games: Efficient Private Provision of Public Goods," Economic Inquiry, Western Economic Association International, vol. 29(2), pages 351-366, April.
    7. Isaac, R Mark & Walker, James M, 1988. "Communication and Free-Riding Behavior: The Voluntary Contribution Mechanism," Economic Inquiry, Western Economic Association International, vol. 26(4), pages 585-608, October.
    8. R. Isaac & David Schmidtz & James Walker, 1989. "The assurance problem in a laboratory market," Public Choice, Springer, vol. 62(3), pages 217-236, September.
    9. John B. Van Huyck & Raymond C. Battalio & Richard O. Beil, 1991. "Strategic Uncertainty, Equilibrium Selection, and Coordination Failure in Average Opinion Games," The Quarterly Journal of Economics, Oxford University Press, vol. 106(3), pages 885-910.
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    Cited by:

    1. Dino Falaschetti, 2004. "Can Voting Reduce Welfare? Evidence from the US Telecommunications Sector," Public Economics 0401009, EconWPA.
    2. Dino Falaschetti, 2004. "Can Voting Reduce Welfare? Evidence from the US Telecommunications Sector," Public Economics 0401006, EconWPA.
    3. Kilby, Christopher, 2005. "World Bank lending and regulation," Economic Systems, Elsevier, vol. 29(4), pages 384-407, December.
    4. Dino Falaschetti, 2003. "Voter Turnout, Regulatory Commitment, and Capital Accumulation: Evidence from the US Telecommunications Sector," Microeconomics 0311002, EconWPA.

    More about this item

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination


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