We address in this paper the issue of leadership when two governments provide public goods to their constituencies with cross border externalities as both public goods are valued by consumers in both countries. We study a timing game between two different countries: before providing public goods, the two policymakers non-cooperatively decide their preferred sequence of moves. We establish conditions under which a first- or second-mover advantage emerges for each country, highlighting the role of spillovers and the strategic complementarity or substitutability of public goods. As a result we are able to prove that there is no leader when, for both countries, public goods are substitutable. When public goods are complements for both countries, both countries may emerge as the leader in the game. Hence a coordination issue arises. We use the notion of risk-dominance to select the leading government. Lastly, in the mixed case, the government for whom public goods are substitutable becomes the leader.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Publisher Info
Paper provided by CERDI in its series Working Papers with number
200817.
Length: 39 Date of creation: 2008 Date of revision: Handle: RePEc:cdi:wpaper:1008
Contact details of provider: Postal: 65 Bd. F. Mitterrand, 63000 Clermont-Ferrand Phone: (33-4) 73 17 74 00 Fax: (33-4) 73 17 74 28 Web page: http://cerdi.org/ More information through EDIRC
For technical questions regarding this item, or to correct its listing, contact: (Vincent Mazenod).