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Collusion In Local Public Works

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  • Martin Besfamille

Abstract

A hierarchical model of collusion in local public works is presented. A local authority plans to undertake a project, delegating its construction to a construction firm. Both of them know the project's cost. However, the federal government decides whether to subsidize the project without knowing its cost. Therefore, the local authority and the constructor may agree to misreport their private information, in order to benefit from the allocation of federal grants. We show that different collusive behaviors may emerge. Then, we characterize the optimal federal grant policy. Finally, we investigate when constructing (shutting down) useless (valuable) projects is optimal. Copyright 2004 by the Economics Department Of The University Of Pennsylvania And Osaka University Institute Of Social And Economic Research Association.

Suggested Citation

  • Martin Besfamille, 2004. "Collusion In Local Public Works," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(4), pages 1193-1219, November.
  • Handle: RePEc:ier:iecrev:v:45:y:2004:i:4:p:1193-1219
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    Cited by:

    1. Shun-ichiro Bessho & Kimiko Terai, 2011. "Competition for private capital and central grants: the case of Japanese industrial parks," Economics of Governance, Springer, vol. 12(2), pages 135-154, June.
    2. Anton Granik & Francesco Saraceno, 2012. "Institutions and growth: A simplied theory of decentralization and corruption," Documents de Travail de l'OFCE 2012-21, Observatoire Francais des Conjonctures Economiques (OFCE).
    3. repec:spo:wpecon:info:hdl:2441/53r60a8s3kup1vc9k2cag6dp8 is not listed on IDEAS

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