To make reform possible, politically strong losers have to be bought out. Whether the losers are fully compensated upfront or given running compensation depends on their political influence after reform. We build a simple but general model to study dynamic consistency of compensation and...

Most central banks explain interest rate decisions, i.e., they provide a story. With committee decisions, it can be difficult to find a story that is both consistent with the decision and representative for the committee. We consider two alternative procedures: (i) vote on the interest rate and...

Monetary policy decisions are typically characterized by three features: (i) decisions are made by a committee, (ii) the committee members often disagree, and (iii) the chairman is almost never on the losing side in the vote. We show that the combination of overconfident policymakers and a...

The discursive dilemma implies that the decision of a board depends on whether the board votes directly on the decision (conclusion-based procedure) or votes on the premises for the decision (premise-based procedure). We derive results showing when the discursive dilemma might occur. Under...

Modern central banks do not only announce the interest rate decision, they also communicate a "story" that explains why they reached the particular decision. When decisions are made by a committee, it could be difficult to find a story that is both consistent with the decision and representative...

How do monetary policy committee (MPC) members form their views about the appropriate interest rate? To what extent do they change their minds during the deliberations in the interest rate meeting? How important is the Chairman? The theoretical literature makes assumptions about these issues. We...

Most economic decisions involve judgments. When decisions are taken collectively, various judgment aggregation problems may occur. Here we consider an aggregation problem called the "discursive dilemma", which is characterized by an inconsistency between the aggregate judgment on the premises...

The typical judgment aggregation problem in economics and other fields is the following: A group of people has to judge (estimate) the value of an uncertain variable y which is a function of k other variables, i.e. y = D(x1,...xk) . We analyze when it is possible for the group to arrive at...

We consider a situation where society decides, through majority voting in a secret ballot, between the alternatives of ‘reform’ and ‘status quo’. Reform is assumed to create a minority of winners, while being efficient in the Kaldor-Hicks sense. We explore the consequences of allowing...

We suggest that overconfidence among policymakers explains why formal decision power over monetary policy is given to committees, while much of the real power to set policy remains with central bank chairmen. Overconfidence implies that the chairman underweights advice from his staff, increasing...