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Information, Reputation and Optimal Policy

Paper Session

Friday, Jan. 3, 2020 10:15 AM - 12:15 PM (PDT)

Manchester Grand Hyatt, Ocean Beach
Hosted By: Society for Economic Dynamics
  • Chair: Alessandro Dovis, University of Pennsylvania

Fiscal Rules and Discretion under Limited Enforcement

Marina Halac
,
Yale University
Pierre Yared
,
Columbia University

Abstract

Fiscal rules trade off the benefit of committing government
to not overspend against the benefit of granting it flexibility to
react to privately observed shocks. The optimal rule is a maximally
enforced deficit limit, triggering the largest feasible penalty
whenever violated.

Reputation and Sovereign Default

Manuel Amador
,
University of Minnesota
Chris Phelan
,
University of Minnesota

Abstract

A relatively impatient sovereign government’s hidden type
switches back and forth between a commitment type, which cannot
default on its debts, and an optimizing type, which can. The
optimizing government reveals its type only by defaulting at random
times.

Efficiency and Adverse Selection: On Desirability of Mutual Contracts

Varadarajan Chari
,
University of Minnesota
Ali Shourideh
,
Carnegie Mellon University
Ariel Zetlin-Jones
,
Carnegie Mellon University

Abstract

We study competitive equilibria in economies with adverse
selection with large population of agents and a finite set of firms.
We show that when contracts are allowed to depend on the composition
of agents that trade with one firm, an efficient equilibrium always
exists.

Rules without Commitment: Reputation and Incentives

Alessandro Dovis
,
University of Pennsylvania
Rishabh Kirpalani
,
University of Wisconsin-Madison

Abstract

We study the optimal design of rules when there is a time
inconsistency problem and uncertainty about the ability of policy
makers to follow the rules. We show that reputational considerations
call for lenient rules. Moreover, opaque rules are preferable to
transparent ones.
JEL Classifications
  • E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
  • D4 - Market Structure, Pricing, and Design