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Deciding about (de-)centralization of industrial policy: Delegation by a central authority vs. bargaining of regional governments

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  • Morasch, Karl
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    In the European Union the commission has the primary right to decide about industrial policy. Note that this includes the possibility to allow actions of member countries as long as these are not in conflict with the interest of the EU. This paper deals with the question whether such an assignment of decision rights is appropriate by comparing it with a more decentral system where the decision power is in the hands of the member countries which, however, may agree to delegate this power on a case by case basis to a central authority. The analysis is performed in an integrated Cournot duopoly with domestic and third country consumption. Here it depends on the export ratio and the degree of uncertainty whether industrial policy is better performed by a central authority that internalizes spillovers or by regional governments with superior information about the costs of the regional firm. To analyze how the initial allocation of decision rights affects the actual assignment of power for a specific industry we compare two situations: (i) An uninformed central authority decides about delegation to regional governments. (ii) Asymmetrically informed regional governments bargain about empowering a central authority. Interestingly delegation outperforms bargaining on average in a setting with side payments but without information transfer. If, however, signals obtained in the bargaining stage are used to update the own information, bargaining without side payments delivers in expectation a better result than delegation.

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    File URL: https://www.econstor.eu/bitstream/10419/32826/1/377741779.pdf
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    Paper provided by Universität der Bundeswehr München, Economic Research Group in its series Working Papers in Economics with number 2003,3.

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    Date of creation: 2003
    Handle: RePEc:zbw:ubwwpe:20033
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    1. Michel Poitevin, 2000. "Can the theory of incentives explain decentralization?," Canadian Journal of Economics, Canadian Economics Association, vol. 33(4), pages 878-906, November.
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    6. Caillaud, B. & Jullien, B. & Picard, P., 1996. "National vs European incentive policies: Bargaining, information and coordination," European Economic Review, Elsevier, vol. 40(1), pages 91-111, January.
    7. Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414, July.
    8. Gilbert, Guy & Picard, Pierre, 1996. "Incentives and optimal size of local jurisdictions," European Economic Review, Elsevier, vol. 40(1), pages 19-41, January.
    9. Brander, James A. & Spencer, Barbara J., 1985. "Export subsidies and international market share rivalry," Journal of International Economics, Elsevier, vol. 18(1-2), pages 83-100, February.
    10. Collie, David & Hviid, Morten, 1993. " Export Subsidies as Signals of Competitiveness," Scandinavian Journal of Economics, Wiley Blackwell, vol. 95(3), pages 327-339.
    11. Collie, David R., 2000. "State aid in the European Union: The prohibition of subsidies in an integrated market," International Journal of Industrial Organization, Elsevier, vol. 18(6), pages 867-884, August.
    12. POITEVIN, Michel, 2000. "Innis Lecture: Can the Theory of Incentives Explain Decentralization?," Cahiers de recherche 2000-13, Universite de Montreal, Departement de sciences economiques.
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