We thank Manuel Amador, Simone Galperti, the editor, and three anonymous referees for useful suggestions, and Alexander Groves for valuable research assistance.
Comment on “Commitment vs. Flexibility”
Article first published online: 18 SEP 2013
© 2013 The Econometric Society
Volume 81, Issue 5, pages 2113–2124, September 2013
How to Cite
Ambrus, A. and Egorov, G. (2013), Comment on “Commitment vs. Flexibility”. Econometrica, 81: 2113–2124. doi: 10.3982/ECTA10739
- Issue published online: 18 SEP 2013
- Article first published online: 18 SEP 2013
- Manuscript received April, 2012; final revision received February, 2013.
This comment corrects two results in the 2006 Econometrica 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.