| Abstract: |
It happens very often, and existing evidence supports it, that countries run politics of large public deficit or increased inflation and permanently postpone stabilization although they know that those politics are unsustainable in the long run. We explain this phenomenon as conflict between two interest groups and we model it as a war of attrition. Firstly, we present the basic elements of game theory, which we will use in this thesis. Then, we introduce the models of delayed stabilization and we describe the process of finding Perfect Bayesian equilibrium (PBE). Afterwards, we investigate in comparative statics the factors delaying or hastening the stabilization. In the final section we examine how is the time of stabilization influenced by factors as crisis, foreign aid, external intervention, election period, ideological orientation of groups and cohesion within group |
