Nicola Acocella

The Theory of Economic Policy in a Strategic Context: Preface

book deals with conflicts between strategic actions by public and private agents. It builds on the Lucas critique, but also applies the tools introduced by Tinbergen and Theil to dynamic policy games and from there derives a new theory of economic policy. Its main propositions describe such properties in the models currently used for policymaking as neutrality and equilibrium existence, uniqueness, and multiplicity. These properties are key to understanding the impact of concepts such as rational expectations, time inconsistency, communication and the use of policy announcements. As the numerous examples show, they are useful both for model building and for devising optimal institutions. The Theory of Economic Policy in a Strategic Context is an essential but accessible tool for economic researchers involved in policy questions.

Conflict of interest and coordination in public good provision

By applying the new theory of economic policy to the provision of public goods, new and interesting issues emerge. On the one hand, such well-known results as, e.g., the inefficiency of decentralized equilibria can be reinterpreted in the light of the new approach; on the other hand, new issues of coordination arise. A conflict of interest among the agents may in fact not only imply inefficiencies, but also prevent the existence of a Nash equilibrium; moreover, even in situation where there is no conflict, coordination failures may emerge implying multiple equilibria. Finally, the new theory of economic policy can easily be applied in order to extend the concept of a public good to macroeconomic targets pursued simultaneously by more than one player.