Flexible Majority Rules for Central Banks

Abstract

We propose a flexible majority rule for central-bank councils where the size of the majority depends monotonically on the change in interest rate within a particular time frame. Small changes in interest rate require a small share of supporting votes, even less than 50\%. We show that flexible majority rules are superior to simple majority rules and can implement the optimal monetary policy under a variety of circumstances.

A shorter version of the paper can be found in the Journal of Money Credit and Banking Volume 41, Issue 2-3, pages 507–516, March-April 2009

download paper

Cake Division by Majority Decision

Abstract

We consider a collective choice process where three players make proposals seque ntially on how to divide a given quantity of resources. Afterwards, one of the p roposals is chosen by majority decision. If no proposal obtains a majority, a pr oposal is drawn by lot. We establish the existence of the set of subgame perfect equilibria, using a suitable refinement concept. In any equilibrium, the first agent offers the whole cake to the second proposal-maker, who in turn offers the whole cake back to the first agent. The third agent is then indifferent about d ividing the cake between himself and the first or the second agent.

download paper

Is it that easy?

Abstract

In this paper we provide one single aspect of the financial crisis. We show in a very simple model the dramatic downgrade of a simplified CDO^2, if the default probability of the underlying credit varies slightly.

download paper