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A Note on the Hybrid Equilibrium in the Besley-Smart Model

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  • Lockwood, Ben

    (University of Warwick and CEPR)

Abstract

This note shows that there is always a non-empty set of parameter values for which the hybrid equilibrium in the Besley and Smart(2003) model is unstable in the sense of Cho and Kreps. This set may include all the parameter values for which a hybrid equilibrium exists. For these parameter values, it is shown that a fully separating equilibrium always exists, which is Cho-Kreps stable. In this equilibrium, the good incumbent distorts ?scal policy to signal his type. An implication is that equilibrium in their model is not (generically) unique.

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File URL: http://www2.warwick.ac.uk/fac/soc/economics/research/workingpapers/2008/twerp727.pdf
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Bibliographic Info

Paper provided by University of Warwick, Department of Economics in its series The Warwick Economics Research Paper Series (TWERPS) with number 727.

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Length: 6 pages
Date of creation: 2005
Date of revision:
Handle: RePEc:wrk:warwec:727

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Cited by:
  1. Hindricks, Jean & Lockwood, Ben, 2005. "Decentralization and Electoral Accountability: Incentives, Separation and Voter Welfare," CEPR Discussion Papers 5125, C.E.P.R. Discussion Papers.
  2. Viceisza, Angelino, 2008. "An experimental inquiry into the effect of yardstick competition on corruption:," IFPRI discussion papers 774, International Food Policy Research Institute (IFPRI).
  3. Fernanda Brollo, 2008. "Who Is Punishing Corrupt Politicians - Voters or the Central Government? Evidence from the Brazilian Anti-Corruption Program," Boston University - Department of Economics - The Institute for Economic Development Working Papers Series dp-168, Boston University - Department of Economics.

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