Alessandro Riboni

The Dynamic (In)efficiency of Monetary Policy by Committee

This paper develops a model where the value of the monetary policy instrument is selected by a heterogenous committee engaged in a dynamic voting game. Committee members differ in their institutional power and, in certain states of nature, they also differ in their preferred instrument value. Preference heterogeneity and concern for the future interact to generate decisions that are dynamically ineffcient and inertial around the previously-agreed instrument value. This model endogenously generates autocorrelation in the policy variable and provides an explanation for the empirical observation that the nominal interest rate under the central bank’s control is infrequently adjusted.

Committees as Substitutes for Commitment

In this article, policies are negotiated in a committee by playing a dynamic voting game with an endogenous default (or status quo) policy. I show that joining a committee by maintaining a strong agenda setting power is a way for a decision maker to commit to a policy that in absence of committees is not time consistent. The disciplinary role of the endogenous status quo and the heterogeneity of preferences within the committee are two crucial ingredients to obtain this result. As a motivating example, this article focuses on the time consistency of monetary policy.

Legal institutions, innovation, and growth

We analyze the relationship between legal institutions, innovation and growth. We compare a rigid (law set ex-ante) legal system and a exible one (law set after observing current technology). The exible system dominates in terms of welfare, amount of innovation and output growth at intermediate stages of technological development - periods when legal change is needed. The rigid system is preferable at early stages of technological development, when (lack of) commitment problems are severe. For mature technologies the two legal systems are equivalent. We nd that rigid legal systems may induce excessive (greater than rst-best) R&D investment and output growth.

Preference heterogeneity in monetary policy committees

This short paper employs individual voting records of the Monetary Policy Committee (MPC) of the Bank of England to study heterogeneity in policy preferences among committee members. The analysis is carried out using a simple generalization of the standard Neo Keynesian framework that allows members to di er in the weight they give to output compared with in ation stabilization and in their views regarding optimal inflation and natural output. Results indicate that, qualitatively, MPC members are fairly homogeneous in their policy preferences, but that there are systematic quantitative di erences in their policy reaction functions that are related to the nature of their membership and career background.

Ideology and endogenous constitutions

We study a legislature where decisions are made by playing an agenda-setting game. Legislators are concerned about their electoral prospects but they are also genuinely concerned for the legislature to make the correct decision. We show that when ideological polarization is positive but not too large (and the status quo is extremely inefficient), institutions in which the executive has either no constraints (autocracy) or many constraints (unanimity) are preferable to democracies that operate under an intermediate number of constraints (simple majority rule). When instead ideological polarization is large (and the status quo is only moderately inefficient), simple majority turns out to be preferable.

Doubts and Dogmatism in Conflict Behavior

This paper studies a game of conflict where two individuals fight in order to choose a policy. Intuitively, conflicts will be less violent if individuals entertain the possibility that their opponent may be right. Why is it so difficult to observe this attitude? To answer this question, this paper considers a model of indoctrination where altruistic advisors (such as, preachers or parents), after receiving signals from Nature, send messages to the participants in the conflict. In some cases, as a result of indoctrination, both individuals never doubt about the possibility of being wrong, although all available information suggests otherwise. In other cases, one of the two individuals is excessively reasonable: he believes that the opponent may be right even when all the evidence indicates beyond any doubt that the policy preferred by the opponent is suboptimal. The common feature in both cases is that information is distorted, although in different directions. The model has a rich set of predictions concerning the incidence and intensity of conflict, and the evolution of indoctrination strategies over time.

Doubts and dogmatism in conflict behaviour

We consider a conflict under incomplete information where two opponents fight to impose their preferred policy. Before the conflict, one opponent (the agent) trusts the information received by his principal. Under some conditions, the principal induces hawkish attitudes in the agent: the agent never doubts the optimality of his preferred policy, conflicts are violent, and bad decisions are sometimes made. Under other conditions, the agent believes that his opponent may be right, even when all evidence indicates that the policy preferred by the opponent is certainly suboptimal. In this case, the agent adopts dovish attitudes and conflicts are less violent.