IDEAS home Printed from
MyIDEAS: Login to save this paper or follow this series

Central Banking by Committee

  • Anne Sibert

There is a small, but growing, economics literature on the importance and effects of having monetary policy made by a committee, rather than by an individual. Complimenting this is an older and larger body of literature on groups in the other social sciences, particular in social psychology. This paper provides a review of some of this work, focusing on two important features of committees: the effect of their size on performance and whether or not they are more moderate than the members who make them up. Individual members of a committee acquire idiosyncratic information which the committee uses to make a decision. A result of the famous Condorcet Jury Theorem is that larger committees have more resources, in the form of more information, and are thus better than smaller ones. This result depends on individuals being willing to work as hard at gathering information when they are members of a committee as they would be willing to work if they were acting alone. The economics literature suggests that this may not hold; that individual members may have an incentive to shirk. This phenomenon of a member withholding effort is called social loading in the social pyschology literature. Studies stretching over 125 years document its existence and suggest that it becomes more important as committee size increases and that it disappears when individual members contributions can be identified and evaluated. The Condorcet Jury Theorem also depends on the committee being able to aggregate members information and on members being willing to truthfully reveal their information. An excessively formal meeting structure may cause the former to fail to hold; committee members with different objectives may cause the latter not to be true. As a result of shirking and coordination problems, smaller committees may be better than larger ones and the optimal size for a committee is an empirical issue. Committees pool members information and views, thus it seems that monetary policy made by a committee should be more moderate than monetary policy made by a single individual. However, several hundred studies demonstrate that belonging to a committee polarizes its members and, hence, committees may be more extreme than individuals. A particularly harmful form of group polarization occurs when committee members striving for consensus causes them to stop paying suffcient attention to alternative courses of action. In this case the committee may make terrible decisions that none of its members would have made on their own. The results of the literature on committee size and committee polarization suggest that the ideal monetary policy committee may not have many more than five members. It should have a well defined objective and it should publish the votes of its members. It should be structured so that members do not act as part of a group, perhaps by having short terms in office and members from outside the central bank. External scrutiny of the decision-making process should be encouraged.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
Download Restriction: no

Paper provided by Netherlands Central Bank, Research Department in its series DNB Working Papers with number 091.

in new window

Date of creation: Feb 2006
Date of revision:
Handle: RePEc:dnb:dnbwpp:091
Contact details of provider: Postal: Postbus 98, 1000 AB Amsterdam
Web page:

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Alan S. Blinder & John Morgan, 2000. "Are Two Heads Better Than One?: An Experimental Analysis of Group vs. Individual Decisionmaking," NBER Working Papers 7909, National Bureau of Economic Research, Inc.
  2. Lombardelli, Clare & Proudman, James & Talbot, James, 2005. "Committees Versus Individuals: An Experimental Analysis of Monetary Policy Decision Making," MPRA Paper 823, University Library of Munich, Germany.
  3. Ley, E. & Steel, M.FJ., 1995. "A Model of Management Teams," Papers 9586, Tilburg - Center for Economic Research.
  4. Gerlach-Kristen, Petra, 2005. "Too little, too late: Interest rate setting and the costs of consensus," Economics Letters, Elsevier, vol. 88(3), pages 376-381, September.
  5. Gerling, Kerstin & Gruner, Hans Peter & Kiel, Alexandra & Schulte, Elisabeth, 2005. "Information acquisition and decision making in committees: A survey," European Journal of Political Economy, Elsevier, vol. 21(3), pages 563-597, September.
  6. Sushil Bikhchandani & David Hirshleifer & Ivo Welch, 1998. "Learning from the Behavior of Others: Conformity, Fads, and Informational Cascades," Journal of Economic Perspectives, American Economic Association, vol. 12(3), pages 151-170, Summer.
  7. Drora Karotkin & Jacob Paroush, 2003. "Optimum committee size: Quality-versus-quantity dilemma," Social Choice and Welfare, Springer, vol. 20(3), pages 429-441, 06.
  8. Whyte, Glen, 1993. "Escalating Commitment in Individual and Group Decision Making: A Prospect Theory Approach," Organizational Behavior and Human Decision Processes, Elsevier, vol. 54(3), pages 430-455, April.
  9. Sah, Raaj Kumar & Stiglitz, Joseph E, 1988. "Committees, Hierarchies and Polyarchies," Economic Journal, Royal Economic Society, vol. 98(391), pages 451-70, June.
  10. Dewatripont, Mathias & Jewitt, Ian & Tirole, Jean, 1999. "The Economics of Career Concerns, Part I: Comparing Information Structures," Review of Economic Studies, Wiley Blackwell, vol. 66(1), pages 183-98, January.
  11. Hao Li & Sherwin Rosen & Wing Suen, 1999. "Conflicts and Common Interests in Committees," NBER Working Papers 7158, National Bureau of Economic Research, Inc.
  12. Akerlof, George A, 1991. "Procrastination and Obedience," American Economic Review, American Economic Association, vol. 81(2), pages 1-19, May.
  13. Alan S. Blinder, 1999. "Central Banking in Theory and Practice," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262522608, June.
  14. Christopher J. Waller, 2000. "Policy Boards And Policy Smoothing," The Quarterly Journal of Economics, MIT Press, vol. 115(1), pages 305-339, February.
  15. Cason, Timothy N & Mui, Vai-Lam, 1997. "A Laboratory Study of Group Polarisation in the Team Dictator Game," Economic Journal, Royal Economic Society, vol. 107(444), pages 1465-83, September.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:dnb:dnbwpp:091. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Rob Vet)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.