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Harmonization and Side Payments in Political Cooperation

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Bård Harstad

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Abstract

For two districts or countries that try to internalize externalities, I analyze a bargaining game under private information. I derive conditions for when it is efficient with uniform policies across regions—with and without side payments— and when it is efficient to prohibit side payments in the negotiations. While policy differentiation and side payments allow the policy to better reflect local conditions, they create conflicts between the regions and, thus, delay. The results also describe when political centralization outperforms decentralized cooperation, and they provide a theoretical foundation for the controversial "uniformity assumption" traditionally used by the fiscal federalism literature. (JEL C78, D72, D82, H77)

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File URL: http://hdl.handle.net/10.1257/aer.97.3.871
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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 97 (2007)
Issue (Month): 3 (June)
Pages: 871-889
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Handle: RePEc:aea:aecrev:v:97:y:2007:i:3:p:871-889

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Besley, Timothy & Coate, Stephen, 2003. "Centralized versus decentralized provision of local public goods: a political economy approach," Journal of Public Economics, Elsevier, vol. 87(12), pages 2611-2637, December. [Downloadable!] (restricted)
  2. Alberto Alesina & Ignazio Angeloni & Federico Etro, 2005. "International Unions," American Economic Review, American Economic Association, vol. 95(3), pages 602-615, June. [Downloadable!]
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  3. Bolton, Patrick & Farrell, Joseph, 1990. "Decentralization, Duplication, and Delay," Journal of Political Economy, University of Chicago Press, vol. 98(4), pages 803-26, August. [Downloadable!] (restricted)
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  4. Inderst, Roman, 2000. "Multi-issue Bargaining with Endogenous Agenda," Games and Economic Behavior, Elsevier, vol. 30(1), pages 64-82, January. [Downloadable!] (restricted)
  5. Hendriks, Jean & Lockwood, Ben, 2005. "Decentralization and Electoral Accountability : Incentives, Separation, and Voter Welfare," The Warwick Economics Research Paper Series (TWERPS) 729, University of Warwick, Department of Economics. [Downloadable!]
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  6. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January. [Downloadable!] (restricted)
  7. Admati, Anat R & Perry, Motty, 1987. "Strategic Delay in Bargaining," Review of Economic Studies, Blackwell Publishing, vol. 54(3), pages 345-64, July. [Downloadable!] (restricted)
  8. Lockwood, Ben, 2002. "Distributive Politics and the Costs of Centralization," Review of Economic Studies, Blackwell Publishing, vol. 69(2), pages 313-37, April.
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  9. Matthias Wrede, 2006. "Uniformity Requirement and Political Accountability," Journal of Economics, Springer, vol. 89(2), pages 95-113, November. [Downloadable!] (restricted)
  10. Wilson, Robert B, 1985. "Incentive Efficiency of Double Auctions," Econometrica, Econometric Society, vol. 53(5), pages 1101-15, September. [Downloadable!] (restricted)
  11. Alesina, A. & Drazen, A., 1991. "Why Are Stabilizations Delayed?," Papers 6-91, Tel Aviv - the Sackler Institute of Economic Studies.
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  12. Michael Hoel, 1992. "International environment conventions: The case of uniform reductions of emissions," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 2(2), pages 141-159, March. [Downloadable!] (restricted)
  13. Barrett, Scott, 2001. "International cooperation for sale," European Economic Review, Elsevier, vol. 45(10), pages 1835-1850, December. [Downloadable!] (restricted)
  14. Besharov, Gregory, 2001. "Influence Costs in the Provision of Local Public Goods," Working Papers 01-02, Duke University, Department of Economics. [Downloadable!]
  15. Wallace E. Oates, 1999. "An Essay on Fiscal Federalism," Journal of Economic Literature, American Economic Association, vol. 37(3), pages 1120-1149, September. [Downloadable!] (restricted)
  16. Koleman S. Strumpf & Felix Oberholzer-Gee, 2002. "Endogenous Policy Decentralization: Testing the Central Tenet of Economic Federalism," Journal of Political Economy, University of Chicago Press, vol. 110(1), pages 1-36, February. [Downloadable!] (restricted)
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  1. Bard Harstad, 2006. "Flexible Integration," Discussion Papers 1428, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
  2. Paul Schure & Francesco Passerelli & David Scoones, 2007. "When the Powerful Drag Their Feet," Department Discussion Papers 0703, Department of Economics, University of Victoria. [Downloadable!]
  3. Bard Harstad & Gunnar S. Eskeland, 2006. "Trading for the Future: Signaling in Permit Markets," Discussion Papers 1429, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
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