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Article: The value of commitment with imperfect observability and private information.(testing of economic models)
- Article from:
- RAND Journal of Economics
- Article date:
- December 22, 1999
- Author:
CopyrightCOPYRIGHT 1999 Rand, Journal of Economics. This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan. All inquiries regarding rights should be directed to the Gale Group. (Hide copyright information)
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The idea that commitment is valuable plays a key role in many economic models. However, Bagwell (1995) has shown that commitment may have no value if there is (even a slight) noise in the observation of the leader's action, thus casting doubt on the notion that commitment has strategic value. Here I reconsider the commitment story in a model where the leader's action is imperfectly observed and the leader has private information. I show that the value of commitment is restored by private information, and I examine how it is affected by uncertainty about the leader's type and by the observation noise.
1. Introduction
* The notion that commitment is ...