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The Value of Commitment with Imperfect Observability and Private Information

  • Giovanni Maggi

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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Article provided by The RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 30 (1999)
Issue (Month): 4 (Winter)
Pages: 555-574

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Handle: RePEc:rje:randje:v:30:y:1999:i:winter:p:555-574
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