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Interregional competition, spillovers and attachment in a federation

  • Silva, Emilson C.D.
  • Yamaguchi, Chikara

We examine decentralized environmental policy making in a federation characterized by decentralized leadership and imperfect labor mobility due to attachment to regions. Energy consumption generates positive consumption benefits, but energy supply generates federal air pollution. Regional authorities regulate energy supply by controlling supplies of pollution permits. Energy and pollution permits are traded in interregional markets. The center redistributes incomes after it observes regional supplies of pollution permits. Regions are populated by mobile and immobile households and profits are expatriated. We show that the subgame perfect equilibrium for the federal policy game played by regional and central authorities is socially optimal.

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Article provided by Elsevier in its journal Journal of Urban Economics.

Volume (Year): 67 (2010)
Issue (Month): 2 (March)
Pages: 219-225

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Handle: RePEc:eee:juecon:v:67:y:2010:i:2:p:219-225
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622905

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  1. Boadway, Robin, 1982. "On the Method of Taxation and the Provision of Local Public Goods: Comment," American Economic Review, American Economic Association, vol. 72(4), pages 846-51, September.
  2. Wellisch, Dietmar, 1994. "Interregional spillovers in the presence of perfect and imperfect household mobility," Journal of Public Economics, Elsevier, vol. 55(2), pages 167-184, October.
  3. Caplan, Arthur J. & Cornes, Richard C. & Silva, Emilson C. D., 2000. "Pure public goods and income redistribution in a federation with decentralized leadership and imperfect labor mobility," Journal of Public Economics, Elsevier, vol. 77(2), pages 265-284, August.
  4. Mansoorian, Arman & Myers, Gordon M., 1993. "Attachment to home and efficient purchases of population in a fiscal externality economy," Journal of Public Economics, Elsevier, vol. 52(1), pages 117-132, August.
  5. Myers & G.M., 1989. "Optimality, Free Mobility And The Regional Authority In Federation," Working Papers 10, John Deutsch Institute for the Study of Economic Policy.
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