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Public input competition under Stackelberg equilibrium: A note

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  • Yongzheng Liu
  • Jorge Martinez-Vazquez

Abstract

This paper examines the Stackelberg equilibrium for public input competition and compares it with the non-cooperative Nash equilibrium. Given two asymmetric regions, we show that under the Nash equilibrium, the more productive region tends to spend more on public input, which results in this region attracting more capital than the less productive region. The comparison of the two equilibria reveals that the leader region obtains a _rst-mover advantage under the stackelberg setting. This suggests that if regions interact with each other sequentially as in the Stackelberg equilibrium, then the regional disparity that is due to the heterogeneity of productivity is likely to be mitigated or enlarged, depending on which region performs the leadership role in the competition process.

Suggested Citation

  • Yongzheng Liu & Jorge Martinez-Vazquez, 2014. "Public input competition under Stackelberg equilibrium: A note," Working Papers. Collection A: Public economics, governance and decentralization 1406, Universidade de Vigo, GEN - Governance and Economics research Network.
  • Handle: RePEc:gov:wpaper:1406
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    References listed on IDEAS

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    Keywords

    Public input competition; Nash and Stackelberg equilibria; Comparison.;

    JEL classification:

    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects
    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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