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Yardstick Competition and Policy Innovation

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  • Rincke, Johannes

Abstract

A simple model of yardstick competition between jurisdictions is presented. Governments of jurisdictions face the alternative to choose between an old and a new policy with stochastic payoffs. The new policy is superior to the old policy in one state of the world, and inferior in the other. Governments are either benevolent, serving the interest of the voter, or rent-seeking. An equilibrium with yardstick competition is shown to exist where bad governments having a good government in their neighborhood choose the new policy more often compared to an equilibrium without relative performance evaluation. Overall, the probability of policy innovations is increased by yardstick competition. The model has a testable empirical implication saying that policy innovations should show spatial correlation.

Suggested Citation

  • Rincke, Johannes, 2005. "Yardstick Competition and Policy Innovation," ZEW Discussion Papers 05-11, ZEW - Leibniz Centre for European Economic Research.
    • Handle: RePEc:zbw:zewdip:2901
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    File URL: https://www.econstor.eu/bitstream/10419/24104/1/dp0511.pdf
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    References listed on IDEAS

    as
    1. Besley, Timothy & Case, Anne, 1995. "Incumbent Behavior: Vote-Seeking, Tax-Setting, and Yardstick Competition," American Economic Review, American Economic Association, vol. 85(1), pages 25-45, March.
    2. Paul Belleflamme & Jean Hindriks, 2005. "Yardstick competition and political agency problems," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 24(1), pages 155-169, September.
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    5. Christos Kotsogiannis & Robert Schwager, 2006. "Political Uncertainty and Policy Innovation," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 8(5), pages 779-805, December.
    6. Besley, Tim & Smart, Michael, 2002. "Does Tax Competition Raise Voter Welfare?," CEPR Discussion Papers 3131, Centre for Economic Policy Research.
    7. Coate, Stephen & Morris, Stephen, 1995. "On the Form of Transfers in Special Interests," Journal of Political Economy, University of Chicago Press, vol. 103(6), pages 1210-1235, December.
    8. repec:cup:apsrev:v:63:y:1969:i:03:p:880-899_25 is not listed on IDEAS
    9. Paul Belleflamme & Jean Hindriks, 2005. "Yardstick competition and political agency problems," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 24(1), pages 155-169, September.
    10. Bordignon, Massimo & Cerniglia, Floriana & Revelli, Federico, 2003. "In search of yardstick competition: a spatial analysis of Italian municipality property tax setting," Journal of Urban Economics, Elsevier, vol. 54(2), pages 199-217, September.
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    Citations

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    Cited by:

    1. Johannes Rincke, 2006. "Policy innovation in local jurisdictions: Testing for neighborhood influence in school choice policies," Public Choice, Springer, vol. 129(1), pages 189-200, October.
    2. Jörg Bergmann & Oliver Franz & Dirk Hachmeister & Stefan Hadré & Daniel Schäffner, 2011. "Erreichbarkeit regulatorischer Renditen für Betreiber von Energienetzen," Schmalenbach Journal of Business Research, Springer, vol. 63(64), pages 52-75, January.
    3. Wohlgemuth, Michael, 2007. "Learning through institutional competition," Freiburg Discussion Papers on Constitutional Economics 07/9, Walter Eucken Institut e.V..
    4. Thomas Apolte, "undated". "Wettbewerb versus Harmonisierung im Verbraucherschutz," German Working Papers in Law and Economics 2007-1-1179, Berkeley Electronic Press.
    5. Wohlgemuth, Michael, 2011. "The boundaries of the state," Freiburg Discussion Papers on Constitutional Economics 11/3, Walter Eucken Institut e.V..

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    More about this item

    JEL classification:

    • D6 - Microeconomics - - Welfare Economics
    • D7 - Microeconomics - - Analysis of Collective Decision-Making
    • H - Public Economics

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