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Dynamic Rawlsian Policy

Author

Listed:
  • Martin Ellison
  • Charles Brendon
  • Martin Ellison

Abstract

A well-known time-inconsistency problem hinders optimal decision-making when policymakers are constrained in their pesent choices by expectations of future outcomes. The time-inconsistency problem is caused by differences in the preferences of policymakers who exist at different points in time. Adapting the arguments of Rawls (1971), we propose that these differences can be eliminated if policy is set from behind a 'veil of ignorance', without knowledge of when the policy will be implemented. We set up a well-defined choice problem that captures this normative perspective. The policies that it generates have a number of appealing properties.

Suggested Citation

  • Martin Ellison & Charles Brendon & Martin Ellison, 2012. "Dynamic Rawlsian Policy," Economics Series Working Papers 595, University of Oxford, Department of Economics.
    • Handle: RePEc:oxf:wpaper:595
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    References listed on IDEAS

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    1. Lars E. O. Svensson, 1999. "How should monetary policy be conducted in an era of price stability?," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 195-259.
    2. Andrew P. Blake & Tatiana Kirsanova, 2012. "Discretionary Policy and Multiple Equilibria in LQ RE Models," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 79(4), pages 1309-1339.
    3. Taylor, John B, 1979. "Estimation and Control of a Macroeconomic Model with Rational Expectations," Econometrica, Econometric Society, vol. 47(5), pages 1267-1286, September.
    4. Marc P. Giannoni & Michael Woodford, 2003. "Optimal Interest-Rate Rules: I. General Theory," Levine's Bibliography 506439000000000384, UCLA Department of Economics.
    5. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-491, June.
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    Cited by:

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    Keywords

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    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • 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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