Credibility May Require Discretion, Not Rules

Posted: 29 May 2001

See all articles by Tyler Cowen

Tyler Cowen

George Mason University - Department of Economics

Amihai Glazer

University of California, Irvine - Department of Economics

Katarina Zajc

George Mason University - Department of Economics

Abstract

We reexamine the common argument that rules produce greater credibility than discretion. Rules limit the actions of agents, restricting observations of the agents' preferences or types. In a second-best world, where rules cannot be everlasting, a regime of discretion in some periods may produce superior credibility and dominate a regime of rules.

Keyword(s): Rules, Discretion, Credibility, Regulation

JEL Classification: D78, D82, L51

Suggested Citation

Cowen, Tyler and Glazer, Amihai and Zajc, Katarina, Credibility May Require Discretion, Not Rules. Journal of Public Economics, Vol. 76, No. 2, May 2000. Available at SSRN: https://ssrn.com/abstract=252724

Tyler Cowen (Contact Author)

George Mason University - Department of Economics ( email )

4400 University Drive
Fairfax, VA 22030
United States
703-993-1130 (Phone)
703-993-1133 (Fax)

Amihai Glazer

University of California, Irvine - Department of Economics ( email )

3151 Social Science Plaza
Irvine, CA 92697-5100
United States
949-854-6563 (Phone)
949-824-2182 (Fax)

Katarina Zajc

George Mason University - Department of Economics

4400 University Drive
Fairfax, VA 22030
United States

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