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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
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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. Salmon, Pierre, 1987. "Decentralisation as an Incentive Scheme," Oxford Review of Economic Policy, Oxford University Press, vol. 3(2), pages 24-43, Summer.
  2. Timothy Besley & Anne Case, 1992. "Incumbent Behavior: Vote Seeking, Tax Setting and Yardstick Competition," NBER Working Papers 4041, National Bureau of Economic Research, Inc.
  3. 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.
  4. BELLEFLAMME, Paul & HINDRIKS, Jean, 2002. "Yardstick competition and political agency problems," CORE Discussion Papers 2002029, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  5. 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.
  6. Porter, Robert H., 1983. "Optimal cartel trigger price strategies," Journal of Economic Theory, Elsevier, vol. 29(2), pages 313-338, April.
  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. Edward J Green & Robert H Porter, 1997. "Noncooperative Collusion Under Imperfect Price Information," Levine's Working Paper Archive 1147, David K. Levine.
  9. Drew Fudenberg & David K. Levine & Eric Maskin, 1994. "The Folk Theorem with Imperfect Public Information," Levine's Working Paper Archive 394, David K. Levine.
  10. Revelli, Federico, 2006. "Performance rating and yardstick competition in social service provision," Journal of Public Economics, Elsevier, vol. 90(3), pages 459-475, February.
  11. McMillan, John, 1979. "Individual incentives in the supply of public inputs," Journal of Public Economics, Elsevier, vol. 12(1), pages 87-98, August.
  12. Timothy Besley & Michael Smart, 2005. "Fiscal restraints and voter welfare," LSE Research Online Documents on Economics 3769, London School of Economics and Political Science, LSE Library.
  13. 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.
  14. 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.
  15. Chen Kong-Pin, 1995. "On Renegotiation-Proof Equilibrium under Imperfect Monitoring," Journal of Economic Theory, Elsevier, vol. 65(2), pages 600-610, April.
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