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76NBER20150421215859.0150421s2006 mau||||fs|||| 000 0 eng d1
aKing, Robert G.10aDiscretionary Policy and Multiple
Equilibriah[electronic resource] /cRobert G. King.
aCambridge, Mass.bNational Bureau of Economic
Researchc2006.1 aNBER working paper seriesvno. w12076
aMarch 2006.3 aDiscretionary policymaking can foster
strategic complementarities between private sector decisions,
thus leading to multiple equilibria. This article studies a
simple example, originating with Kydland and Prescott, of a
government which must decide whether to build a dam to prevent
adverse effects on floods on the incomes of residents of a
floodplain. In this example, it is socially inefficient to build
the dam and for people to live on the floodplain, with this o