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Common Agency and Coordination: General Theory and Application to Government Policy Making

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  • Dixit, Avinash
  • Grossman, Gene M.
  • Helpman, Elhanan

Abstract

We develop a model of common agency with complete information and general preferences with nontransferable utility, and we prove that the principals' Nash equilibrium in truthful strategies implements an efficient action. We apply this theory to the construction of a positive model of public finance, where organized special interests can lobby the government for consumer and producer taxes or subsidies and targeted lumpâ€sum taxes or transfers. The lobbies use only the nondistorting transfers in their noncooperative equilibrium, but their intergroup competition for transfers turns into a prisoners' dilemma in which the government captures all the gain that is potentially available to the parties.

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File URL: http://dash.harvard.edu/bitstream/handle/1/3450061/Helpman_CommonAgency.pdf
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Bibliographic Info

Paper provided by Harvard University Department of Economics in its series Scholarly Articles with number 3450061.

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Date of creation: 1997
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Publication status: Published in Journal of Political Economy -Chicago-
Handle: RePEc:hrv:faseco:3450061

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  1. Hammond, Peter J, 1979. "Straightforward Individual Incentive Compatibility in Large Economies," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 46(2), pages 263-82, April.
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  1. Sistemas políticos mudam mas os príncipios ficam
    by Tiago Tavares in Mercado de Limões on 2009-06-18 12:20:44
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