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The Effect of Spillovers on the Provision of Local Public Goods

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  • Bloch, Francis
  • Zenginobuz, Unal

Abstract

This paper analyzes the provision of local public goods with positive spillovers across jurisdictions. If spillovers are symmetric, the noncooperative game played by jurisdictions admits a unique equilibrium, and an increase in spillovers reduces the total provision of public goods. Smaller jurisdictions always reduce their contribution, but larger jurisdictions can increase their contribution. When spillovers are asymmetric, equilibrium is unique if spillovers are low, while multiple equilibria exist for high spillover values. In the case of two jurisdictions, an increase in the flow of spillovers to one jurisdiction benefits agents from that jurisdiction but harms agents in the other jurisdiction. Beyond the case of two jurisdictions, the effect of changes in spillovers cannot be signed. An increase in the spillovers flowing to a jurisdiction can actually result in an increase in the supply of public goods by that jurisdiction and harm agents residing in it, while benefiting agents in the other jurisdictions. The results of the paper reveal the complexity of interactions that will plague the design of institutions for multijurisdictional local public good economies with spillovers.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 186.

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Date of creation: 15 Dec 2004
Date of revision: 05 Oct 2006
Handle: RePEc:pra:mprapa:186

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Keywords: local public goods; positive spillovers; equilibrium;

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  1. Lockwood, Ben, 1998. "Distributive Politics and the Costs of Centralization," CEPR Discussion Papers 2046, C.E.P.R. Discussion Papers.
  2. Bergstrom, Theodore & Blume, Lawrence & Varian, Hal, 1986. "On the private provision of public goods," Journal of Public Economics, Elsevier, vol. 29(1), pages 25-49, February.
  3. Redoano, Michela & Scharf, Kimberley Ann, 2002. "The Political Economy of Policy Centralization: Direct Versus Representative Democracy," CEPR Discussion Papers 3631, C.E.P.R. Discussion Papers.
  4. Bergstrom, Ted C. & Blume, Larry & Varian, Hal, 1992. "Uniqueness of Nash equilibrium in private provision of public goods : An improved proof," Journal of Public Economics, Elsevier, vol. 49(3), pages 391-392, December.
  5. Xavier Vives, 2001. "Oligopoly Pricing: Old Ideas and New Tools," MIT Press Books, The MIT Press, edition 1, volume 1, number 026272040x, December.
  6. Kjetil Bjorvatn & Guttorm Schjelderup, 2000. "Tax Competition and International Public Goods," CESifo Working Paper Series 390, CESifo Group Munich.
  7. Boskin, Michael J, 1973. "Local Government Tax and Product Competition and the Optimal Provision of Public Goods," Journal of Political Economy, University of Chicago Press, vol. 81(1), pages 203-10, Jan.-Feb..
  8. Crémer, Jacques & Palfrey, Thomas, 2003. "A Voting Model of Federal Standards with Externalities," IDEI Working Papers 182, Institut d'Économie Industrielle (IDEI), Toulouse.
  9. Besley, Timothy & Coate, Stephen, 2003. "Centralized versus decentralized provision of local public goods: a political economy approach," Journal of Public Economics, Elsevier, vol. 87(12), pages 2611-2637, December.
  10. Bloch, Francis & Zenginobuz, E. Unal, 2006. "Tiebout equilibria in local public good economies with spillovers," Journal of Public Economics, Elsevier, vol. 90(8-9), pages 1745-1763, September.
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Cited by:
  1. Abderrahmane ZIAD & Emmanuelle TAUGOURDEAU, 2011. "Fiscal Policies and Trade: On the existence of Nash equilibria," Economics Working Paper Archive (University of Rennes 1 & University of Caen) 201112, Center for Research in Economics and Management (CREM), University of Rennes 1, University of Caen and CNRS.
  2. Kempf, H. & Rota Graziosi, G., 2009. "Leadership in Public Good Provision: a Timing Game Perspective," Working papers 240, Banque de France.
  3. Nizar Allouch, 2013. "The Cost of Segregation in Social Networks," Working Papers 2013.52, Fondazione Eni Enrico Mattei.
  4. Luca Corazzini, Ugo Gianazza, 2006. "Asymmetric Contributions from Identical Agents in a Local Interaction Model," ISLA Working Papers 24, ISLA, Centre for research on Latin American Studies and Transition Economies, Universita' Bocconi, Milano, Italy, revised Mar 2007.
  5. Emilie Caldeira & Martial Foucault & Grégoire Rota-Graziosi, 2012. "Decentralisation in Africa and the Nature of Local Governments' Competition: Evidence from Benin," NBER Working Papers 18126, National Bureau of Economic Research, Inc.
  6. Martin Gregor & Lenka Šastná, 2011. "The Decentralization Tradeoff for Complementary Spillovers," Working Papers IES 2011/13, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Apr 2011.
  7. Rémy Oddou, 2011. "The effect of spillovers and congestion on the segregative properties of endogenous jurisdictions formation," THEMA Working Papers 2011-24, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
  8. Martin Gregor, 2012. "Modeling positive inter-jurisdictional public spending spillovers," Working Papers IES 2012/16, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Jun 2012.

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