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Think Locally, Act Locally: Spillovers, Spillbacks, and Efficient Decentralized Policymaking

  • Hikaru Ogawa

    ()

    (School of Economics, Nagoya University)

  • David Wildasin

    (Martin School of Public Policy and Administration and Department of Economics, University of Kentucky)

In this paper, we analyze a class of models in which there are interjurisdictional spillovers among heterogeneous jurisdictions, as illustrated for instance by CO2 emissions that affect the global environment. Each jurisdiction’s emissions depend upon the local stock of private capital. Capital is interjurisdictionally-mobile and may be taxed to help finance local public expenditures. We show that decentralized policymaking leads to efficient resource allocations in important cases, even in the complete absence of corrective interventions by higher-level governments or coordination of policy through Coasian bargaining. In particular, even when the preferences and production technologies differ among the agents, the decentralized system can still result in globally efficient allocation.

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File URL: http://www.ifigr.org/publication/ifir_working_papers/IFIR-WP-2007-06.pdf
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Paper provided by University of Kentucky, Institute for Federalism and Intergovernmental Relations in its series Working Papers with number 2007-06.

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Length: 30 pages
Date of creation: Aug 2007
Date of revision:
Handle: RePEc:ifr:wpaper:2007-06
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