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A Note on the Hybrid Equilibrium in the Besley-Smart Model

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  • Lockwood, Ben

    (University of Warwick and CEPR)

Abstract

This note shows that there is always a non-empty set of parameter values for which the hybrid equilibrium in the Besley and Smart(2003) model is unstable in the sense of Cho and Kreps. This set may include all the parameter values for which a hybrid equilibrium exists. For these parameter values, it is shown that a fully separating equilibrium always exists, which is Cho-Kreps stable. In this equilibrium, the good incumbent distorts ?scal policy to signal his type. An implication is that equilibrium in their model is not (generically) unique.

Suggested Citation

  • Lockwood, Ben, 2005. "A Note on the Hybrid Equilibrium in the Besley-Smart Model," The Warwick Economics Research Paper Series (TWERPS) 727, University of Warwick, Department of Economics.
  • Handle: RePEc:wrk:warwec:727
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    File URL: https://www2.warwick.ac.uk/fac/soc/economics/research/workingpapers/2008/twerp727.pdf
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    Cited by:

    1. Hindriks, Jean & Lockwood, Ben, 2009. "Decentralization and electoral accountability: Incentives, separation and voter welfare," European Journal of Political Economy, Elsevier, pages 385-397.
    2. Massimo Bordignon, 2015. "Exit and Voice: Yardstick Versus Fiscal Competition Across Governments," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 1(1), pages 117-137, March.
    3. Fernanda Brollo, 2008. "Who Is Punishing Corrupt Politicians – Voters or the Central Government? Evidence from the Brazilian Anti-Corruption Program," Working Papers 336, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    4. Angelino Viceisza, 2007. "An experimental inquiry into the effect of yardstick competition on corruption," Experimental Economics Center Working Paper Series 2007-09, Experimental Economics Center, Andrew Young School of Policy Studies, Georgia State University.

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