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Conspicuous Public Goods and Leadership Selection

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  • C. Jennings
  • H.J. Roelfsema

Abstract

Abstract If voters care for the relative supply of public goods compared to other jurisdictions, decentralized provision of public goods will be too high. Potentially, centralization internalizes the negative externalities from the production of these `conspicuous' public goods. However, in a model of strategic delegation of policy making, we show that in the decentralized policy making case the median voter may delegate to a politician who cares less for conspicuous public goods than she does herself. By doing so, she commits to lower public goods in the home and in the foreign country. In contrast, with centralization the median voter anticipates the reduction in public goods supply by delegating to a policy maker who cares more for public goods than she does herself. This last effect mitigates the expected benefits of centralization.

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Bibliographic Info

Paper provided by Utrecht School of Economics in its series Working Papers with number 04-10.

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Date of creation: 2004
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Handle: RePEc:use:tkiwps:0410

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Keywords: Conspicuous goods; strategic delegation; policy centralization;

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  1. Abel, Andrew B, 1990. "Asset Prices under Habit Formation and Catching Up with the Joneses," American Economic Review, American Economic Association, vol. 80(2), pages 38-42, May.
  2. Cochrane, John H. & Campbell, John, 1999. "By Force of Habit: A Consumption-Based Explanation of Aggregate Stock Market Behavior," Scholarly Articles 3119444, Harvard University Department of Economics.
  3. John Y. Campbell & John Cochrane, 1999. "Force of Habit: A Consumption-Based Explanation of Aggregate Stock Market Behavior," Journal of Political Economy, University of Chicago Press, vol. 107(2), pages 205-251, April.
  4. Gali, Jordi, 1994. "Keeping Up with the Joneses: Consumption Externalities, Portfolio Choice, and Asset Prices," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 26(1), pages 1-8, February.
  5. Colin Jennings & Alan Hamlin, 2004. "Leadership and Conflict," Economics Series Working Papers 200, University of Oxford, Department of Economics.
  6. Robert A.J. Dur & Hein J. Roelfsema, 2002. "Why does Centralisation fail to internalise Policy Externalities?," Tinbergen Institute Discussion Papers 02-056/3, Tinbergen Institute, revised 11 Nov 2003.
  7. Yeung Lewis Chan & Leonid Kogan, 2002. "Catching Up with the Joneses: Heterogeneous Preferences and the Dynamics of Asset Prices," Journal of Political Economy, University of Chicago Press, vol. 110(6), pages 1255-1285, December.
  8. Besley, Timothy J. & Coate, Stephen, 2000. "Centralized versus Decentralized Provision of Local Public Goods: a Political Economy Analysis," CEPR Discussion Papers 2495, C.E.P.R. Discussion Papers.
  9. Harald Uhlig & Lars Ljungqvist, 2000. "Tax Policy and Aggregate Demand Management under Catching Up with the Joneses," American Economic Review, American Economic Association, vol. 90(3), pages 356-366, June.
  10. Besley, Timothy & Coate, Stephen, 1997. "An Economic Model of Representative Democracy," The Quarterly Journal of Economics, MIT Press, vol. 112(1), pages 85-114, February.
  11. Bill Dupor & Wen-Fang Liu, 2003. "Jealousy and Equilibrium Overconsumption," American Economic Review, American Economic Association, vol. 93(1), pages 423-428, March.
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