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Inefficient centralization of imperfect complements



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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    References listed on IDEAS

    1. František Turnovec & Jacek W. Mercik & Mariusz Mazurkiewicz, 2004. "Power Indices: Shapley-Shubik OR Penrose-Banzhaf?," Working Papers IES 48, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised 2004.
    2. Karel Janda, 2003. "Credit guarantees in a credit market with adverse selection," Prague Economic Papers, University of Economics, Prague, vol. 2003(4).
    3. Karel Janda, 2004. "Bankruptcy Procedures with Ex Post Moral Hazard," Working Papers IES 61, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised 2004.
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    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


    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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