We consider collective decisions made by agents whose preferences and power depend on past events and decisions. Faced with an inefficient equilibrium and an opportunity to commit to a policy, can the agents reach an agreement on such a policy? We provide a consistency condition linking power structures in the dynamic setting and at the commitment stage. When the condition holds, commitment has no value: any agreement that may be reached at the outset coincides with the equilibrium without commitment. When the condition fails, as in the case of time-inconsistent preferences, commitment can improve outcomes. We discuss several applications.
ASJC Scopus subject areas
- Economics and Econometrics