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Working Paper

Commitment As Irreversible Investment

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Considering time inconsistency as a problem of irreversible investment brings some neglected points to the fore. Making a policy choice in real time and under current conditions emphasizes the importance of the timing of commitment, the regret over past decisions, and the option value of not committing. This paper applies these concepts to monetary policy, banking regulation, and capital taxation.
12.01.1992ISSN 2573-7953 WP 92-17DOI 10.26509/frbc-wp-199217

Working Papers of the Federal Reserve Bank of Cleveland are preliminary materials circulated to stimulate discussion and critical comment on research in progress. They may not have been subject to the formal editorial review accorded official Federal Reserve Bank of Cleveland publications. The views expressed in this paper are those of the authors and do not represent the views of the Federal Reserve Bank of Cleveland or the Federal Reserve System.

Suggested Citation

Haubrich, Joseph G., and Joseph Ritter. 1992. “Commitment As Irreversible Investment.” Federal Reserve Bank of Cleveland, Working Paper No. 92-17. https://doi.org/10.26509/frbc-wp-199217