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Public input competition under Stackelberg equilibrium: A note

Listed author(s):
  • Yongzheng Liu
  • Jorge Martinez-Vazquez

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.

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File URL: http://infogen.webs.uvigo.es/WP/WP1406.pdf
File Function: First version, 2014
Download Restriction: no

Paper provided by Universidade de Vigo, GEN - Governance and Economics research Network in its series Working Papers. Collection A: Public economics, governance and decentralization with number 1406.

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Length: 19 pages
Date of creation: Jul 2014
Handle: RePEc:gov:wpaper:1406
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  17. Sebastian Hauptmeier & Ferdinand Mittermaier & Johannes Rincke, 2008. "Fiscal Competition over Taxes and Public Inputs: Theory and Evidence," CESifo Working Paper Series 2499, CESifo Group Munich.
  18. C. Dembour, 2008. "Competition for Business Location: A Survey," Journal of Industry, Competition and Trade, Springer, vol. 8(2), pages 89-111, June.
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  20. Zodrow, George R. & Mieszkowski, Peter, 1986. "Pigou, Tiebout, property taxation, and the underprovision of local public goods," Journal of Urban Economics, Elsevier, vol. 19(3), pages 356-370, May.
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