Collective Commitment

Date: 2016-07
By: Christian Roessler
Sandro Shelegia
Bruno Strulovici
URL: http://d.repec.org/n?u=RePEc:bge:wpaper:933&r=net
We consider collective decisions made by agents whose preferences and power depend on past events and decisions. Faced with an inecient equilibrium and an opportunity to commit to a policy, can the agents reach an agreement on such a policy? We provide a consistency condition linking power structures in the dynamic setting and at the commitment stage. When the condition holds, commitment has no value: any agreement that may be reached at the outset coincides with the equilibrium without commitment. When the condition fails, as in the case of time-inconsistent preferences, commitment can improve outcomes. We discuss several applications.
JEL: D70 H41 C70
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