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Government and Cities: Contests and the Decentralization of Decision Making

  • Epstein, Gil S
  • Gang, Ira

Governments do not have perfect information regarding the priorities and the needs of different groups in the economy. This lack of knowledge opens the door for different groups to lobby the government in order to receive the government’s support. We set up a model of hierarchical contests and compare the implications of a centralized allocation process with a decentralized allocation process. We show the potential existence of a poverty trap as a result of fiscal federalism.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3585.

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Date of creation: Oct 2002
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Handle: RePEc:cpr:ceprdp:3585
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  18. Eytan Sheshinski, 2000. "Bounded Rationality and Socially Optimal Limits on Choice in a Self-Selection Model," Discussion Paper Series dp330, The Federmann Center for the Study of Rationality, the Hebrew University, Jerusalem, revised Nov 2002.
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