Laws, Institutions and Delegated Authority Back to The Time Consistency Problem to overview Forward to Elections and Changes of Policymakers
5.1 Introduction
Reputation is a way to a credible policy. Here, how institutional background cares for a credible policy.
5.2 Laws, Constitutions, and Social contratcs
Politic can be restricted by laws, or the constitution. Conventions and norms can have the same force like a law. But why should a policy maker didn't break or change a law? Breaking laws is connected with costs, also channing laws is costly. The force of laws is build on their penalties or costs of breaking or changing. But their are limits in raising penalties and raising the force by a law.
5.3 Constitutions
Dividing the power is one posible reason for the credebility of a constitution. But constitutions aren't a solution for the kind of time inconsistency which we want to solve. Two arguments against this possibility are, constitutions aren't flexibili and they are made for "real" issues, and not for changing them every year.
5.4 Delegation of Authority
Two reasons for delegation of authority, the agent has experience and knowledge and or more time to focus this part of problems. In a world with uncertainty the agent need to have oppurtunitate to decide discretion. It's not optimal to apoint an agent with the some objectives, both principal and agent act strategecally.
5.5 Central Bank Independence
Goal independence, they are free which goal they want to reach.
Istrument independence, in choosing their instrument's they were free.
Sascha Frank
Last modified: Wed Nov 16 19:08:53 MET 2005