American Economic Review Vol. 114 No. 11 2024

Institution Building without Commitment

Marco Bassetto¹; Zhen Huo²; José-Víctor Ríos-Rull³

¹ Federal Reserve Bank of Minneapolis (email: ) · ² Department of Economics, Yale University (email: ) · ³ Department of Economics, University of Pennsylvania, CAERP, CEPR, NBER, and University College London, Ronald O. Perelman Center for Political Science and Economics (email: )

Abstract

We propose a theory of gradualism in the implementation of good policies, suitable for environments featuring time consistency. We downplay the role of the initial period by allowing agents both to wait for future agents to start equilibrium play and to restart the equilibrium by ignoring past history. The allocation gradually transits toward one that weighs both short- and long-term concerns, stopping short of the Ramsey outcome but greatly improving upon Markovian equilibria. We use the theory to account for the slow emergence of both climate policies and the reduction of global tariff rates.

DOI

10.1257/aer.20201365

Volume

114

Issue

11

Pages

3427-3468

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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