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Political Institutions and the Dynamics of Public Investment

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  • Marco Battaglini
  • Salvatore Nunnari
  • Thomas R. Palfrey

Abstract

We present a theoretical model of the provision of a durable public good over an infinite horizon. In each period, there is a societal endowment of which each of n districts owns a share. This endowment can either be invested in the public good or consumed. We characterize the planner's optimal solution and time path of investment and consumption. We then consider alternative political mechanisms for deciding on the time path, and analyze the Markov perfect equilibrium of these mechanisms. One class of these mechanisms involves a legislature where representatives of each district bargain with each other to decide how to divide the current period's societal endowment between investment in the public good and transfers to each district. The second class of mechanisms involves the districts making independent decisions for how to divide their own share of the endowment between consumption and investment. We conduct an experiment to assess the performance of these mechanisms, and compare the observed allocations to the Markov perfect equilibrium.

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Bibliographic Info

Paper provided by Collegio Carlo Alberto in its series Carlo Alberto Notebooks with number 142.

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Length: 57 pages
Date of creation: 2010
Date of revision:
Handle: RePEc:cca:wpaper:142

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Keywords: Dynamic political economy; voting; public goods; bargaining; experiments;

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Cited by:
  1. Guillaume R. Frechette & John H. Kagel & Massimo Morelli, 2010. "Pork Versus Public Goods: An Experimental Study of Public Good Provision Within a Legislative Bargaining Framework," Economics Working Papers ECO2010/37, European University Institute.
  2. Ruiz-Tagle, J. Cristolbal, 2012. "Dynamic Voluntary Contributions to Public Goods with Stock Accumulation," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124921, Agricultural and Applied Economics Association.
  3. Battaglini, Marco, 2014. "A dynamic theory of electoral competition," Theoretical Economics, Econometric Society, vol. 9(2), May.
  4. Marco Battaglini & Thomas Palfrey, 2012. "The dynamics of distributive politics," Economic Theory, Springer, vol. 49(3), pages 739-777, April.
  5. Tiezzi, Silvia & Xiao, Erte, 2013. "Time Delay and Support for Taxation," MPRA Paper 51233, University Library of Munich, Germany.
  6. Steven A. Matthews, 2008. "Achievable Outcomes of Dynamic Contribution Games, Second Version," PIER Working Paper Archive 11-016, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 20 Jun 2011.

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