FIGURE 8.1 Conceptual Map of Credible Commitment
Time inconsistency and the policy problems it can create
Credible commitment as a solution
Mechanisms of credible commitment
Conditions that enable credible commitment mechanisms Source: Authors.
Objectives of Chapter 8 By the end of this chapter, readers should be able to do the following: • Explain the logic of credible commitment as a solution to time inconsistencies problems • Think about the connection between collective action and credible commitment • Explore how institutions may induce opportunities to make credible commitments • Understand the role of independent third-party monitoring and enforcement • Link the logic of credible commitment to real-life situations.
The Problem: Time Inconsistency The concept of “time inconsistency” or “dynamic inconsistency” refers to a change in the preferences of a decision maker that occurs between an initial policy promise and a policy decision that takes place later. Because politicians want to be reelected, their preferences might change over time. Without institutional guarantees, however, it is not possible for politicians today to ensure that they will take the same action in the future. Time inconsistency is often one of the key determinants of whether credible commitment problems exist. 234
Understanding Policy Change