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Public Good Mix in a Federation with Incomplete Information

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  • Richard C. Cornes

    (University of Nottingham,)

  • Emilson C. D. Silva

Abstract

We analyze a model of resource allocation in a federal system in which the center transfers real resources between member states. The center is assumed to be unable to observe the precise value of the cost differences across jurisdictions that motivate the transfers. Moreover, the center cannot observe the output levels of the individual local public goods provided by the jurisdictions, but must condition its transfers on a coarse aggregate of expenditures on public goods. We find that when the jurisdiction with private information realizes a high unit cost, it is generally worthwhile for the center to allow it a level of expenditure on public goods that differs from the "first best" level. However, whether that level is higher or lower than its first best level depends on the magnitudes of demand parameters for the local public good. Copyright 2003 Blackwell Publishing Inc..

Suggested Citation

  • Richard C. Cornes & Emilson C. D. Silva, 2003. "Public Good Mix in a Federation with Incomplete Information," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 5(2), pages 381-397, April.
  • Handle: RePEc:bla:jpbect:v:5:y:2003:i:2:p:381-397
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    Citations

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    Cited by:

    1. Dhillon, Amrita & Perroni, Carlo & Scharf, Kimberley A., 1999. "Implementing tax coordination," Journal of Public Economics, Elsevier, vol. 72(2), pages 243-268, May.
    2. Anil Markandya & Dirk T.G. Rübbelke, 2012. "Impure public technologies and environmental policy," Journal of Economic Studies, Emerald Group Publishing, vol. 39(2), pages 128-143, May.
    3. Bernd Huber & Marco Runkel, 2006. "Optimal Design of Intergovernmental Grants Under Asymmetric Information," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 13(1), pages 25-41, January.
    4. Anton Bondarev & Beat Hintermann & Frank C. Krysiak & Ralph Winkler, 2017. "The Intricacy of Adapting to Climate Change: Flood Protection as a Local Public Goods Game," CESifo Working Paper Series 6382, CESifo Group Munich.
    5. Cornes, Richard C. & Silva, Emilson C. D., 2002. "Local public goods, inter-regional transfers and private information," European Economic Review, Elsevier, vol. 46(2), pages 329-356, February.
    6. Huber, Bernd & Runkel, Marco, 2008. "Interregional redistribution and budget institutions under asymmetric information," Journal of Public Economics, Elsevier, vol. 92(12), pages 2350-2361, December.
    7. Billy Jack, 2003. "Comparing the distortionary effects of alternative in-kind intergovernmental transfers," Working Papers gueconwpa~03-03-17, Georgetown University, Department of Economics.
    8. Krause, Günter, 2004. "The provision of public inputs in a federation under asymmetric information," W.E.P. - Würzburg Economic Papers 52, University of Würzburg, Chair for Monetary Policy and International Economics.

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