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Dynamic Cooperation in Local Public Goods Supply with Imperfect Monitoring

  • Cheikbossian, Guillaume
  • Sand-Zantman, Wilfried

This paper develops a two-country model where each country invests in a local public good generating positive cross-countries externalities. In a repeated game setting where the level of public good depends on a non-observable effort by each country plus a random shock, we characterize the existence condition of a cut-off trigger strategy equilibrium inducing full cooperation. Moreover, we show that introducing a small positive correlation between the two country-specific shocks gives rise to a manipulation of information thereby restricting the prospects of cooperation.

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Paper provided by Institut d'Économie Industrielle (IDEI), Toulouse in its series IDEI Working Papers with number 527.

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Date of creation: Jul 2008
Date of revision:
Publication status: Published in Annales d'Économie et de Statistique, vol. 101, Institut national de la statistique et des études économiques, Paris, 2011, p. 327-346.
Handle: RePEc:ide:wpaper:9498
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  1. Sand-Zantman, W., 2003. "Economic Integration and Political Accountability," Cahiers du LASER (LASER Working Papers) 2003.09, LASER (Laboratoire de Science Economique de Richter), Faculty of Economics, University of Montpellier 1.
  2. Cornes, Richard C. & Silva, Emilson C. D., 2000. "Local Public Goods, Risk Sharing, and Private Information in Federal Systems," Journal of Urban Economics, Elsevier, vol. 47(1), pages 39-60, January.
  3. Paul Belleflamme & Jean Hindriks, 2005. "Yardstick competition and political agency problems," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 24(1), pages 155-169, 09.
  4. Porter, Robert H., 1983. "Optimal cartel trigger price strategies," Journal of Economic Theory, Elsevier, vol. 29(2), pages 313-338, April.
  5. Fudenberg, D. & Levine, D.K. & Maskin, E., 1989. "The Folk Theorem With Inperfect Public Information," Working papers 523, Massachusetts Institute of Technology (MIT), Department of Economics.
  6. Edward J Green & Robert H Porter, 1997. "Noncooperative Collusion Under Imperfect Price Information," Levine's Working Paper Archive 1147, David K. Levine.
  7. Abreu, Dilip & Pearce, David & Stacchetti, Ennio, 1986. "Optimal cartel equilibria with imperfect monitoring," Journal of Economic Theory, Elsevier, vol. 39(1), pages 251-269, June.
  8. Richard C. Cornes & Emilson C.D. Silva, 1996. "Local Public Goods, Inter-Regional Transfers and Private Information," Keele Department of Economics Discussion Papers (1995-2001) 96/11, Department of Economics, Keele University.
  9. Besley, Timothy & Smart, Michael, 2007. "Fiscal restraints and voter welfare," Journal of Public Economics, Elsevier, vol. 91(3-4), pages 755-773, April.
  10. Besley, Timothy & Case, Anne, 1995. "Incumbent Behavior: Vote-Seeking, Tax-Setting, and Yardstick Competition," American Economic Review, American Economic Association, vol. 85(1), pages 25-45, March.
  11. Federico Revelli, 2004. "Performance Rating and Yardstick Competition in Social Service Provision," CESifo Working Paper Series 1270, CESifo Group Munich.
  12. Salmon, Pierre, 1987. "Decentralisation as an Incentive Scheme," Oxford Review of Economic Policy, Oxford University Press, vol. 3(2), pages 24-43, Summer.
  13. Chen Kong-Pin, 1995. "On Renegotiation-Proof Equilibrium under Imperfect Monitoring," Journal of Economic Theory, Elsevier, vol. 65(2), pages 600-610, April.
  14. McMillan, John, 1979. "Individual incentives in the supply of public inputs," Journal of Public Economics, Elsevier, vol. 12(1), pages 87-98, August.
  15. Pecorino, Paul, 1999. "The effect of group size on public good provision in a repeated game setting," Journal of Public Economics, Elsevier, vol. 72(1), pages 121-134, April.
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