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A Nash bargaining solution to models of tax and investment competition: tolls and investment in serial transport corridors

  • Bruno De Borger


    (University of Antwerp)

  • Wilfried Pauwels


    (University of Antwerp)

The purpose of this paper is to study toll and investment competition along a serial transport corridor competition allowing for partial cooperation between regional governments. Partial cooperation is modeled as a Nash bargaining problem with endogenous disagreement points. We show that the bargaining approach to partial cooperation implies lower tolls and higher quality and capacity investment than fully non-cooperative behavior. Moreover, under bargaining, strategic behavior at the investment stage induces regions to offer lower quality and invest less in capacity as compared to full cooperation. Finally, Nash bargaining partially resolves the problem of welfare losses due to toll and capacity competition pointed out in the recent literature.

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Paper provided by Institut d'Economia de Barcelona (IEB) in its series Working Papers with number 2010/1.

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Length: 52 pages
Date of creation: 2010
Date of revision:
Handle: RePEc:ieb:wpaper:2010/4/doc2010-1
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  1. David Levinson, 2001. "Why States Toll: An Empirical Model of Finance Choice," Working Papers 200102, University of Minnesota: Nexus Research Group.
  2. DE BORGER, Bruno & DUNKERLEY, Fay & PROOST, Stef, 2006. "The interaction between tolls and capacity investment in serial and parallel transport networks," CORE Discussion Papers 2006113, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Seungjin Han & John Leach, 2007. "A Bargaining Model of Tax Competition," Department of Economics Working Papers 2007-09, McMaster University.
  4. Steen, Frode & S�rgard, Lars, 2010. "Semicollusion," Foundations and Trends(R) in Microeconomics, now publishers, vol. 5(3), pages 153-228, April.
  5. Bruno De Borger & Stef Proost & Kurt Van Dender, 2003. "Congestion and tax competition in a parallel network," Energy, Transport and Environment Working Papers Series ete0309, Katholieke Universiteit Leuven, Centrum voor Economische Studiën, Energy, Transport and Environment.
  6. André DE PALMA & Luc LERUTH, 1989. "Congestion and Game in Capacity: a Duopoly Analysis in the Presence of Network Externalities," Annales d'Economie et de Statistique, ENSAE, issue 15-16, pages 389-407.
  7. Borck, Rainald & Pflüger, Michael P., 2004. "Agglomeration and Tax Competition," IZA Discussion Papers 1033, Institute for the Study of Labor (IZA).
  8. Ubbels, Barry & Verhoef, Erik T., 2008. "Governmental competition in road charging and capacity choice," Regional Science and Urban Economics, Elsevier, vol. 38(2), pages 174-190, March.
  9. Michael Keen & Christos Kotsogiannis, 2003. "Leviathan and Capital Tax Competition in Federations," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 5(2), pages 177-199, 04.
  10. Wilson, John Douglas & Wildasin, David E., 2004. "Capital tax competition: bane or boon," Journal of Public Economics, Elsevier, vol. 88(6), pages 1065-1091, June.
  11. Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April.
  12. De Borger, B. & Dunkerley, F. & Proost, S., 2007. "Strategic investment and pricing decisions in a congested transport corridor," Journal of Urban Economics, Elsevier, vol. 62(2), pages 294-316, September.
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