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Credibility and endogenous societal discounting


  • Christopher Sleet

    (Carnegie Mellon University)

  • Sevin Yeltekin

    (Northwestern University)


We consider a dynamic moral hazard economy inhabited by a planner and a population of privately informed agents. We assume that the planner and the agents share the same discount factor, but that the planner cannot commit. We show that optimal allocations in such settings solve the problems of committed planners who discount the future less heavily than agents. Thus, we provide micro-foundations for dynamic moral hazard models that assume a societal discount factor in excess of the private one. We extend the analysis to allocations that are reconsideration-proof in the sense of Kocherlakota (1996). We show that these allocations solve the choice problem of a committed planner with a unit discount factor. (Copyright: Elsevier)

Suggested Citation

  • Christopher Sleet & Sevin Yeltekin, 2006. "Credibility and endogenous societal discounting," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 9(3), pages 410-437, July.
  • Handle: RePEc:red:issued:05-139
    DOI: 10.1016/

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    References listed on IDEAS

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    Cited by:

    1. Sleet, Christopher & Yeltekin, Sevin, 2008. "Politically credible social insurance," Journal of Monetary Economics, Elsevier, vol. 55(1), pages 129-151, January.
    2. Larry Jones & Ali Shourideh & Roozbeh Hosseini, 2009. "Risk Sharing, Inequality and Fertility," 2009 Meeting Papers 153, Society for Economic Dynamics.
    3. Acemoglu, Daron & Golosov, Mikhail & Tsyvinski, Aleh, 2011. "Political economy of Ramsey taxation," Journal of Public Economics, Elsevier, vol. 95(7), pages 467-475.
    4. Alexander Karaivanov & Fernando Martin, 2015. "Dynamic Optimal Insurance and Lack of Commitment," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 18(2), pages 287-305, April.
    5. Stefania Albanesi & Roc Armenter, 2012. "Intertemporal Distortions in the Second Best," Review of Economic Studies, Oxford University Press, vol. 79(4), pages 1271-1307.
    6. Charles Brendon & Martin Ellison, 2018. "Time-Consistently Undominated Policies," Discussion Papers 1801, Centre for Macroeconomics (CFM).
    7. Reis, Catarina, 2012. "Social discounting and incentive compatible fiscal policy," Journal of Economic Theory, Elsevier, vol. 147(6), pages 2469-2482.
    8. Irina Yakadina & Michael Kumhof, 2007. "Politically Optimal Fiscal Policy," IMF Working Papers 07/68, International Monetary Fund.
    9. Garriga, Carlos & Sánchez-Losada, Fernando, 2009. "Indirect taxation and the welfare effects of altruism on the optimal fiscal policy," Economic Modelling, Elsevier, vol. 26(6), pages 1365-1374, November.
    10. Luigi Iovino & Mikhail Golosov, 2013. "Social Insurance, Information Revelation, and Lack of Commitment," 2013 Meeting Papers 1020, Society for Economic Dynamics.
    11. Martin Ellison & Charles Brendon, 2018. "Time-Consistently Undominated Policies," Economics Series Working Papers 844, University of Oxford, Department of Economics.
    12. Brendon, C. & Ellison, M., 2018. "Time-Consistently Undominated Policies," Cambridge Working Papers in Economics 1809, Faculty of Economics, University of Cambridge.

    More about this item


    Credibility; Commitment; Dynamic private information; Social insurance;

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy


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