Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/127277
Authors: 
Perino, Grischa
Year of Publication: 
2008
Series/Report no.: 
Discussion Paper Series, University of Heidelberg, Department of Economics 466
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.
Subjects: 
Time-inconsistency
commitment
delegation
JEL: 
D02
D23
D73
H11
Document Type: 
Working Paper

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