The Optimal State Aid Control: No Control
We extend a model of wasteful state aid in Dewatripont and Seabright (2006, Journal of the European Economic Association 4, 513–522) by a supranational controlling authority. The model combines moral hazard and adverse selection to show that politicians fund wasteful projects to signal their effort. Voters, unable to observe project benefits or effort, reward funding with a reelection premium that separates a high-effort politician from a low-effort politician. We examine state aid control by a benevolent authority which receives extra signals about the state of the world. We find that signals on the politician type are worthless. For signals on the project type, we derive a sufficient condition for aid control to unambiguously decrease welfare. We also prove that politicians do not respond to marginal changes in incentives. In this setup, the optimal state aid control is fairly often no control.
Volume (Year): 3 (2009)
Issue (Month): 1 (March)
|Contact details of provider:|| Postal: |
Phone: +420 2 222112330
Fax: +420 2 22112304
Web page: http://ies.fsv.cuni.cz/
More information through EDIRC
|Order Information:|| Web: http://auco.cuni.cz/ Email: |
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Hans Gersbach, 2009.
"Competition of politicians for wages and office,"
Social Choice and Welfare,
Springer, vol. 33(1), pages 51-71, June.
- Panu Poutvaara & Tuomas Takalo, 2004.
- Poutvaara, Panu & Takalo, Tuomas, 2004. "Candidate Quality," IZA Discussion Papers 1195, Institute for the Study of Labor (IZA).
- Poutvaara, Panu & Takalo, Tuomas, 2007. "Candidate quality," Munich Reprints in Economics 19785, University of Munich, Department of Economics.
- Panu Poutvaara & Tuomas Takalo, 2003. "Candidate Quality," CESifo Working Paper Series 1106, CESifo Group Munich.
- Mathias Dewatripont & Paul Seabright, 2006.
""Wasteful" public spending and state aid control,"
ULB Institutional Repository
2013/165574, ULB -- Universite Libre de Bruxelles.
- Cho, In-Koo & Kreps, David M, 1987.
"Signaling Games and Stable Equilibria,"
The Quarterly Journal of Economics,
MIT Press, vol. 102(2), pages 179-221, May.
- Richard E. Baldwin & Frédéric Robert-Nicoud, 2007.
"Entry and Asymmetric Lobbying: Why Governments Pick Losers,"
Journal of the European Economic Association,
MIT Press, vol. 5(5), pages 1064-1093, 09.
- Richard E. Baldwin & Frédéric Robert-Nicoud, 2007. "Entry and asymmetric lobbying: why governments pick losers," LSE Research Online Documents on Economics 19726, London School of Economics and Political Science, LSE Library.
- Richard E. Baldwin & Frederic Robert-Nicoud, 2002. "Entry and Asymmetric Lobbying: Why Governments Pick Losers," NBER Working Papers 8756, National Bureau of Economic Research, Inc.
- Richard E. Baldwin & Frédéric Robert-Nicoud, 2007. "Entry and Asymmetric Lobbying: Why Governments Pick Losers," CEP Discussion Papers dp0791, Centre for Economic Performance, LSE.
- Robinson, James A. & Torvik, Ragnar, 2005.
Journal of Public Economics,
Elsevier, vol. 89(2-3), pages 197-210, February.
- Kenneth Rogoff, 1987.
"Equilibrium Political Budget Cycles,"
NBER Working Papers
2428, National Bureau of Economic Research, Inc.
- Timothy Besley & Paul Seabright, 1999. "The effects and policy implications of state aids to industry: an economic analysis," Economic Policy, CEPR;CES;MSH, vol. 14(28), pages 13-53, 04.
- Costas Roumanias, 2005. "Signaling Through Political Campaigns: Elections As A Revelation Mechanism," Economics and Politics, Wiley Blackwell, vol. 17(3), pages 367-392, November.
- Adi Brender & Allan Drazen, 2008. "How Do Budget Deficits and Economic Growth Affect Reelection Prospects? Evidence from a Large Panel of Countries," American Economic Review, American Economic Association, vol. 98(5), pages 2203-20, December.
- Hans Gersbach, 2004. "The money-burning refinement: With an application to a political signalling game," International Journal of Game Theory, Springer, vol. 33(1), pages 67-87, January.
- Spencer, Barbara J & Brander, James A, 1983.
"International R & D Rivalry and Industrial Strategy,"
Review of Economic Studies,
Wiley Blackwell, vol. 50(4), pages 707-22, October.
- Barbara J. Spencer & James A. Brander, 1982. "International R&D Rivalry and Industrial Strategy," Working Papers 518, Queen's University, Department of Economics.
- Barbara J. Spencer & James A. Brander, 1983. "International R&D Rivalry and Industrial Strategy," NBER Working Papers 1192, National Bureau of Economic Research, Inc.
- David R Collie, 2005. "State aid to investment and R&D," European Economy - Economic Papers 231, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
- Dixit, Avinash, 1984. "International Trade Policy for Oligopolistic Industries," Economic Journal, Royal Economic Society, vol. 94(376a), pages 1-16, Supplemen.
- Georges Casamatta & Caroline De Paoli, 2007. "Inefficient Public Provision in a Repeated Elections Model," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 9(6), pages 1103-1126, December.
- Candel-Sanchez, Francisco, 2007. "Incentives for budget discipline in the presence of elections," European Journal of Political Economy, Elsevier, vol. 23(4), pages 863-884, December.
- Karen Helene Midelfart-Knarvik & Henry G. Overman, 2002. "Delocation and European integration: is structural spending justified?," Economic Policy, CEPR;CES;MSH, vol. 17(35), pages 321-359, October.
- Drazen, Allan & Eslava, Marcela, 2010. "Electoral manipulation via voter-friendly spending: Theory and evidence," Journal of Development Economics, Elsevier, vol. 92(1), pages 39-52, May.
- Philip Keefer & Stephen Knack, 2007. "Boondoggles, Rent-Seeking, and Political Checks and Balances: Public Investment under Unaccountable Governments," The Review of Economics and Statistics, MIT Press, vol. 89(3), pages 566-572, August.
When requesting a correction, please mention this item's handle: RePEc:fau:aucocz:au2009_093. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Lenka Stastna)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.