Common agency with Rational Expectations

Theory and Application to a Monetary Union

Dados Bibliográficos

ID9714709
AutoresAvinash Dixit (0000-0002-8929-7503, Princeton University), Henrik Jensen (0000-0001-6750-2716, University of Copenhagen, CEPR and EPRU)
Ano2003
Volume113
Fascículo489
Páginas539-549
Data de publicação2003-07-01
Peer ReviewedSim
Open AccessSim
TipoARTICLE
PeriódicoThe Economic Journal (JOURNAL)
Identificadores do periódicoISSN: 0013-0133 • E-ISSN: 1468-0297
EditoraOxford University Press (OUP) (PUBLISHER)
DOI10.1111/1468-0297.t01-1-00143
OpenAlexW2000172347
IdiomaEN
Citações recebidas4
Referências citadas8

We extend the theory of common agency to the situation where the principals’ payoffs are affected by their ex ante expectations of the agent's ex post choice. We show how the usual truthful schedules must be modified to account for the rational expectations constraint. We apply the model to a monetary union where member governments influence the policy of the common central bank using incentive contracts. We examine how the outcomes depend on different delegated objectives of the bank, and find that some often‐advocated rules create an excessive deflationary bias

Agency (philosophy · Central bank · Constraint (computer-aided design · Deflation · Dynamic inconsistency · Economics · Ex-ante · Incentive · Macroeconomics · Microeconomics · Monetary economics · Monetary policy · Participation constraint · Principal–agent problem · Rational expectations · Banking stability, regulation, efficiency · Economic theories and models · Finance · Monetary Policy and Economic Impact