Econometrica: Sep 2013, Volume 81, Issue 5

Comment on “Commitment vs. Flexibility”

https://doi.org/10.3982/ECTA10739
p. 2113-2124

Attila Ambrus, Georgy Egorov

This comment corrects two results in the 2006 paper by Amador, Werning, and Angeletos (AWA), that features a model in which individuals face a trade‐off between flexibility and commitment. First, in contrast to Proposition 1 in AWA, we show that money‐burning can be part of the ex ante optimal contract when there are two states. Second, in contrast to Proposition 2 in AWA, we show that money‐burning can be imposed at the top (in the highest liquidity shock state), even when there is a continuum of states. We provide corrected versions of the above results.

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Supplement to "A Comment on Commitment vs. Flexibility"

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