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Inefficient centralization of imperfect complements

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Abstract

If local public goods exhibit spillovers and regions are sufficiently symmetric, decentralization implies underprovision, whereas cooperative centralization is associated with strict Pareto-improvement. This classic inference rests on two assumptions: local politicians are delegated sincerely and never provide voluntary transfers to the other regions. We abandon these assumptions in a setup of two symmetric regions with imperfect complementarity between local public goods. For this particular aggregation, non-cooperative decentralization can achieve the social optimum, whereas cooperative centralization cannot.

Suggested Citation

  • Martin Gregor & Lenka Gregorová, 2007. "Inefficient centralization of imperfect complements," Working Papers IES 2007/19, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Jun 2007.
  • Handle: RePEc:fau:wpaper:wp2007_19
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    File URL: http://ies.fsv.cuni.cz/default/file/download/id/5747
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    Cited by:

    1. repec:ebl:ecbull:v:8:y:2008:i:3:p:1-7 is not listed on IDEAS
    2. Martin Gregor, 2008. "On the strategic non-complementarity of complements," Economics Bulletin, AccessEcon, vol. 8(3), pages 1-7.

    More about this item

    Keywords

    centralization; public goods; strategic delegation; weakest-link; voluntary transfers;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • H40 - Public Economics - - Publicly Provided Goods - - - General
    • H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General
    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects

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