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State capacity, stakeholder buy-in, and collective action problems: the budget allocation case

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  • Raul V. Fabella

    (UP School of Economics, Center for National Policy and Strategy)

Abstract

Weak state capacity can lead to poor economic performance owing to an inability to solve collective action problems associated with lumpy but highly productive infrastructure projects. We formulate a stakeholder buy-in game where two players (regions) must unanimously approve a lumpy infrastructure program in which one region first gets the total budget in period one to finance a lumpy and productive project and the other region gets all the budget generated in period two. The program involves the state undertaking several tax-andtransfer steps in the implementation phase. Both would be better off if the program succeeds. But weak capacity is reflected in the probability that the state fails to deliver at each step. If either player rejects the program, the default allocation is Òdivideby- NÓ, where each player gets an Nth part of the given budget, which can finance only small and less productive projects. When state capacity exceeds a certain threshold, unanimous approval is a unique evolutionarily stable strategy. If not, the Òdivide-by-NÓ rule dominates. A higher return on lumpy projects reduces the hurdle probability and improves the likelihood of stakeholder buy-in. A higher degree of myopia among the players has the opposite effect.

Suggested Citation

  • Raul V. Fabella, 2013. "State capacity, stakeholder buy-in, and collective action problems: the budget allocation case," Philippine Review of Economics, University of the Philippines School of Economics and Philippine Economic Society, vol. 50(2), pages 28-36, December.
  • Handle: RePEc:phs:prejrn:v:50:y:2013:i:2:p:28-36
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    File URL: http://pre.econ.upd.edu.ph/index.php/pre/article/view/896/796
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    References listed on IDEAS

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    1. Dani Rodrik & Arvind Subramanian & Francesco Trebbi, 2004. "Institutions Rule: The Primacy of Institutions Over Geography and Integration in Economic Development," Journal of Economic Growth, Springer, vol. 9(2), pages 131-165, June.
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    4. Easterly, William & Levine, Ross, 2003. "Tropics, germs, and crops: how endowments influence economic development," Journal of Monetary Economics, Elsevier, vol. 50(1), pages 3-39, January.
    5. Elinor Ostrom, 2000. "Collective Action and the Evolution of Social Norms," Journal of Economic Perspectives, American Economic Association, vol. 14(3), pages 137-158, Summer.
    6. Martin J. Osborne & Ariel Rubinstein, 1994. "A Course in Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262650401, March.
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    Cited by:

    1. Florencio B. Abad, 2014. "On the cusp of budget transformation: the work for an inclusive budget process under the Aquino administration," Philippine Review of Economics, University of the Philippines School of Economics and Philippine Economic Society, vol. 51(1), pages 28-59, June.

    More about this item

    Keywords

    public goods provision; weak state; stakeholder buy-in game; Òdivide-by-NÓ rule;

    JEL classification:

    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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