The Value of Commitment with Imperfect Observability and Private Information
Volume: Volume 30, No. 4
Issue: Winter 1999
Pages: pp. 555-574
Authors: Giovanni Maggi
Title: The Value of Commitment with Imperfect Observability and Private Information
Abstract: 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, and I examine how it is affected by uncertainty about the leader's type and by the observation noise.
JEL Classification
Asymmetric and Private Information (D820)
Information