New equilibrium concept resolves time inconsistency problem in economic models.
A new equilibrium concept called organizational equilibrium has been introduced for models with time inconsistency issues. In this concept, agents can restart the equilibrium and wait for others to join. When applied to certain growth and fiscal policy models, it was observed that the allocation gradually shifts from a Markov perfect equilibrium towards a commitment solution, but not reaching the Ramsey outcome. This slow resolution of time inconsistency suggests that building goodwill takes time and is valuable in the long run.