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On Time Inconsistency: A Technical Issue in Stackelberg Differential Games

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  • Danyang Xie

    (Hong Kong University of Science & Technology)

Abstract

Stackelberg differential games are useful settings in which optimal government policies can be studied. This paper argues that the analysis of these games involves a key technical issue. In particular, we question the necessity for optimality of one boundary condition invoked in existing literature. The issue is of key interest because the boundary condition is largely responsible for the time inconsistency results previously obtained. We show that the boundary condition is not necessary in some cases. As a result, our finding undermines the credibility of the existing conclusions. Forthcoming 1997: Journal of Economic Theory.

Suggested Citation

  • Danyang Xie, 2002. "On Time Inconsistency: A Technical Issue in Stackelberg Differential Games," Macroeconomics 0212004, EconWPA.
  • Handle: RePEc:wpa:wuwpma:0212004
    Note: Type of Document - PDF; prepared on PC; to print on HP; pages: 30 ; figures: none
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    References listed on IDEAS

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    2. Persson, Mats & Persson, Torsten & Svensson, Lars E O, 1987. "Time Consistency of Fiscal and Monetary Policy," Econometrica, Econometric Society, vol. 55(6), pages 1419-1431, November.
    3. Calvo, Guillermo A, 1978. "On the Time Consistency of Optimal Policy in a Monetary Economy," Econometrica, Econometric Society, vol. 46(6), pages 1411-1428, November.
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    Keywords

    Time Inconsistency; Stackelberg Differential Game;

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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