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Price Discrimination and Federal Project Grants

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  • Howard A. Chernick

    (U.S. Dept. of Health and Human Services)

Abstract

A discriminating monopoly model of bureaucratic behavior was developed to explain the distribution of project grants to state and local governments. By varying matching rates according to differences in the elasticity of each community's offer curve, the grant administrator attempted to maximize the expenditure inducement effect per dollar of federal aid. The implication is that the allocational effects of intergovernmental aid depend both on local reaction functions and on the degree of bureaucratic discretion in the distribution of aid. The model was tested using the HUD Basic Water and Sewer project grant, and it is shown that matching rates vary systematically with a community's own expenditure level, its per capita income, and its population. Price discrimination was found to increase over time, leading to an increase in expenditures mandated by the grant.

Suggested Citation

  • Howard A. Chernick, 1981. "Price Discrimination and Federal Project Grants," Public Finance Review, , vol. 9(4), pages 371-394, October.
    • Handle: RePEc:sae:pubfin:v:9:y:1981:i:4:p:371-394
    DOI: 10.1177/109114218100900401
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    References listed on IDEAS

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    1. Martin C. McGuire & Harvey A. Garn, 1969. "Problems in the Cooperative Allocation of Public Expenditures," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 83(1), pages 44-59.
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    Cited by:

    1. Brian Knight, 2000. "The flypaper effect unstuck: evidence on endogenous grants from the Federal Highway Aid Program," Finance and Economics Discussion Series 2000-49, Board of Governors of the Federal Reserve System (U.S.).
    2. Riemer P. Faber & Pierre Koning, 2017. "Why not fully spend a conditional block grant?," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 24(1), pages 60-95, February.
    3. Riemer P. Faber & Pierre Koning, 2017. "Why not fully spend a conditional block grant?," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 24(1), pages 60-95, February.

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