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How Delegation Improves Commitment

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  • Grischa Perino

    () (University of Heidelberg, Department of Economics)

Abstract

We often use delegation as a commitment device if a government faces problems of timeinconsistency. McCallum (1995, AER P&P) challenged this practice, claiming that delegation merely relocates the commitment problem but does not solve it. In a model where delegation and specific policies are subject to the same commitment technology it is shown that McCallum’s conjecture holds if optimal ex-ante policies are fixed. However, with a flexibility-credibility trade-off delegation is both desirable and improves credibility. While delegation does not increase commitment per se it makes it more attractive and increases investments in credibility. Delegation can therefore serve as a valid commitment device.

Suggested Citation

  • Grischa Perino, 2008. "How Delegation Improves Commitment," Working Papers 0466, University of Heidelberg, Department of Economics, revised Jun 2008.
  • Handle: RePEc:awi:wpaper:0466
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    References listed on IDEAS

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    1. Kenneth Rogoff, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, Oxford University Press, vol. 100(4), pages 1169-1189.
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    Cited by:

    1. Wolfgang Habla & Ralph Winkler, 2017. "Strategic Delegation and International Permit Markets: Why Linking May Fail," CESifo Working Paper Series 6515, CESifo Group Munich.
    2. Yukihiro Yazaki, 2014. "Rights and judicial independence," Economics of Governance, Springer, vol. 15(2), pages 179-201, May.
    3. Marek Rusnak & Tomas Havranek & Roman Horvath, 2013. "How to Solve the Price Puzzle? A Meta‐Analysis," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(1), pages 37-70, February.
    4. Carlo Cambini & Laura Rondi, 2010. "Regulatory Independence and Political Interference: Evidence from EU Mixed-Ownership Utilities’ Investment and Debt," Working Papers 2010.69, Fondazione Eni Enrico Mattei.
    5. Hahn, Volker, 2014. "An argument in favor of long terms for central bankers," Economics Letters, Elsevier, vol. 122(2), pages 132-135.
    6. François Cochard & Julie Le Gallo & Laurent Franckx, 2015. "Regulation Of Pollution In The Laboratory: Random Inspections, Ambient Inspections, And Commitment Problems," Bulletin of Economic Research, Wiley Blackwell, vol. 67(S1), pages 40-73, December.
    7. Bernardo Bortolotti & Carlo Cambini & Laura Rondi, 2011. "Regulatory Independence, Ownership and Firm Value: The Role of Political Institutions," RSCAS Working Papers 2011/43, European University Institute.
    8. Carlo Cambini & Laura Rondi, 2011. "Independence, Investment and Political Interference: Evidence from the European Union," RSCAS Working Papers 2011/42, European University Institute.
    9. Habla, Wolfgang & Winkler, Ralph, 2015. "Strategic Delegation and Non-cooperative International Permit Markets," Working Papers in Economics 636, University of Gothenburg, Department of Economics.

    More about this item

    Keywords

    Time-inconsistency; commitment; delegation;

    JEL classification:

    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government

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