Common Agency and Coordination: General Theory and Application to Tax Policy
We develop a model of common agency with complete information and general preferences with non-transferable utility, and prove that the principals’ Nash equilibrium in truthful strategies implements an efficient action. We apply this theory to construct a positive model of public finance, where organized special interests can lobby the government for consumer and producer taxes or subsidies and targeted lump-sum taxes or transfers. The lobbies use only the non-distorting transfers in their non-cooperative equilibrium, but their inter-group competitition for transfers turns into a prisoners’ dilemma in which the government captures all the gain that is potentially available to the parties. Therefore, we suggest that pressure groups capable of sustaining an ex-ante agreement will make a commitment to forgo direct transfers and to confine their lobbying to distorting taxes and subsidies.
|Date of creation:||Jul 1996|
|Date of revision:|
|Contact details of provider:|| Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ.|
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
|Order Information:|| Email: |
When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:1436. 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: ()
If references are entirely missing, you can add them using this form.