From time inconsistency
Kydland and Prescott (1977) raised the problem of time inconsistency, in which a plan optimal today is no longer optimal tomorrow, and argued that rules can outperform discretion. Barro and Gordon (1983) showed that if a government has an incentive to create surprise inflation, people anticipate it and only high inflation results, but in repeated settings reputation can partly sustain commitment.
Institutional solutions
North and Weingast (1989) argued that after the Glorious Revolution of 1688, parliamentary control of finance and an independent judiciary prevented arbitrary confiscation by the crown, making the state's commitments credible, lowering government borrowing costs and enabling financial markets to develop. Weingast (1995) posed the fundamental dilemma that a state strong enough to protect property rights is also strong enough to confiscate them, and argued that institutions such as market-preserving federalism ease it. Shepsle (1991) distinguished motivational commitment, kept because one wants to, from imperative commitment, kept because one cannot do otherwise.
Extensions in political science
Fearon (1995) identified commitment problems, in which a side expected to grow stronger cannot credibly promise to honor today's deal, as one rationalist cause of war. Acemoglu and Robinson (2006) explained that because elites can renege on promised redistribution once a crisis passes, citizens demand democracy as institutional power instead of promises. Central bank independence is another institution built on this logic.
FAQ
- What is credible commitment in simple terms?
- To make others believe a promise you might later want to break, you need mechanisms that make breaking it hard.
- How do states make their promises credible?
- They create institutions such as parliamentary control of finance, independent courts and independent central banks that tie the government's hands.
Sources reviewed: 2026-10-26
References
- Kydland, F. E., & Prescott, E. C. (1977). Rules rather than discretion: The inconsistency of optimal plans. Journal of Political Economy, 85(3), 473–491. Time inconsistency.
- Barro, R. J., & Gordon, D. B. (1983). Rules, discretion and reputation in a model of monetary policy. Journal of Monetary Economics, 12(1), 101–121. Reputation and commitment.
- North, D. C., & Weingast, B. R. (1989). Constitutions and commitment: The evolution of institutions governing public choice in seventeenth-century England. The Journal of Economic History, 49(4), 803–832. The Glorious Revolution.
- Weingast, B. R. (1995). The economic role of political institutions: Market-preserving federalism and economic development. The Journal of Law, Economics, and Organization, 11(1), 1–31. The fundamental political dilemma.
- Shepsle, K. A. (1991). Discretion, institutions, and the problem of government commitment. In P. Bourdieu & J. S. Coleman (Eds.), Social theory for a changing society (pp. 245–263). Westview Press. Motivational vs. imperative commitment.
- Fearon, J. D. (1995). Rationalist explanations for war. International Organization, 49(3), 379–414. Commitment problems and war.
- Acemoglu, D., & Robinson, J. A. (2006). Economic origins of dictatorship and democracy. Cambridge University Press. Democratization as commitment.