Building Bridges: Heterogeneous Jurisdictions, Endogenous Spillovers, and the Benefits of Decentralization
AbstractWe model two heterogeneous districts of unequal size that may enjoy each other's local public good if a costly national infrastructure (the bridge) is provided. We compare a decentralized regime where local public goods are decided locally and the bridge centrally, with a centralized regime where all decisions are taken centrally, under both benevolent planner and median voter decision making. In both cases, it may happen that either both regimes build the bridge, none, or only one does. We provide a full-edged welfare comparison of all the possibilities. When the bridge is built in both regimes, centralization dominates if the spillovers allowed by the bridge are sufficiently high. When the bridge is not built in the centralized regime, decentralization is always preferred. We also show that, under some circumstances, it may happen that decentralization dominates even if it does not build the bridge, while the centralized regime does. Finally, we suggest a simple mechanism to avoid the costs imposed by the centralized regime upon minorities: allocating decision power over the local public goods and the bridge to different local constituents.
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Bibliographic InfoPaper provided by Gabinete de Estratégia e Estudos, Ministério da Economia e da Inovação in its series GEE Papers with number 0027.
Length: 34 pages
Date of creation: Dec 2010
Date of revision: Dec 2010
Local public goods; Endogenous Spillovers; Fiscal (de)centralization.;
Find related papers by JEL classification:
- D70 - Microeconomics - - Analysis of Collective Decision-Making - - - General
- H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
- H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
- H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-12-23 (All new papers)
- NEP-GEO-2010-12-23 (Economic Geography)
- NEP-URE-2010-12-23 (Urban & Real Estate Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Rubinchik-Pessach, Anna, 2005. "Can decentralization be beneficial?," Journal of Public Economics, Elsevier, vol. 89(7), pages 1231-1249, July.
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