Political Institutions and the Dynamics of Public Investment
AbstractWe 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 InfoPaper provided by Collegio Carlo Alberto in its series Carlo Alberto Notebooks with number 142.
Length: 57 pages
Date of creation: 2010
Date of revision:
Dynamic political economy; voting; public goods; bargaining; experiments;
Find related papers by JEL classification:
- D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations
- D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
- C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
- C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
- H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
- H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-04-11 (All new papers)
- NEP-PBE-2010-04-11 (Public Economics)
- NEP-POL-2010-04-11 (Positive Political Economics)
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