Optimal Design of Intergovernmental Grants under Asymmetric Information
AbstractThis paper develops a theoretical explanation why it may be optimal for higher-level governments to pay categorical block grants or closed-ended matching grants to local governments. We consider a federation with two types of local governments which differ in the cost of providing public goods. The federal government redistributes between jurisdictions, but cannot observe the type of a jurisdiction. In this asymmetric information setting it is shown that the second-best optimum can be decentralized with the help of categorical block grants and closed-ended matching grants, but not with unconditional block grants or open-ended matching grants.
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Bibliographic InfoPaper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 919.
Date of creation: 2003
Date of revision:
asymmetric information; categorical block grants; closed-ended matching grants;
Other versions of this item:
- Bernd Huber & Marco Runkel, 2006. "Optimal Design of Intergovernmental Grants Under Asymmetric Information," International Tax and Public Finance, Springer, vol. 13(1), pages 25-41, January.
- NEP-ALL-2004-05-02 (All new papers)
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