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A Virtuous Circle of Governance Contests with Externalities

Author

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  • Sung-Hoon Park

    (Department of Economics, Chosun University, 309 Philmoondaero, Dong-gu, Gwangju 61452, Korea)

  • Jason F. Shogren

    (Department of Economics, University of Wyoming, 1000 E. University Avenue, Laramie, WY 82071, USA)

Abstract

Governments create contests to allocate resources to stakeholders, e.g., grants, contracts. The actions of these stakeholders can generate a positive externality for themselves—the contest winner can attract additional outside funding and donations from third-parties who want to jump on the winner’s bandwagon. Herein we examine the externalities arising from these contests created by governance and their impact on a virtuous circle of governance contests. Among various conditions that make governance virtuous, we focus on the equilibrium expected payoffs of stakeholders, the difference in them, and the rent-dissipation rates. Our study shows that the impact of externalities on the efficiency of governance depends on two key factors: (i) the choice of governance contests , the player-externality and the winner-externality, and (ii) the relative efficiency of stakeholders’ efforts.

Suggested Citation

  • Sung-Hoon Park & Jason F. Shogren, 2021. "A Virtuous Circle of Governance Contests with Externalities," Sustainability, MDPI, vol. 13(14), pages 1-12, July.
    • Handle: RePEc:gam:jsusta:v:13:y:2021:i:14:p:7766-:d:592853
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    References listed on IDEAS

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