Ransoms and Credible Public Policy: Brief Lecture Notes

For more than 20 years I have been using hostage ransom as my primary example of a "credible public policy" issue, the analysis of which were advanced by the important papers by Kydland-Prescott and Stokey.

The Obama administration has generously made the lecture (linked here in powerpoint) more interesting. I am a bit embarrassed, however, that the lecture assumed that the terrorists would receive $100,000 cash per hostage -- that appears to be underestimated by factor of 1000. But that is easy enough to edit for subsequent presentations.

But does the model also need to be updated to show the President lying about it redefining the word "ransom"?