Inefficient centralization of imperfect complements

Martin Gregor () and Lenka Gregorová ()
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Lenka Gregorová: Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic, http://ies.fsv.cuni.cz/
Authors registered in the RePEc Author Service: Lenka Stastna (Gregorova) ()

No 2007/19, Working Papers IES from Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies

Abstract: If local public goods exhibit spillovers and regions are sufficiently symmetric, decentralization implies underprovision, whereas cooperative centralization is associated with strict Pareto-improvement. This classic inference rests on two assumptions: local politicians are delegated sincerely and never provide voluntary transfers to the other regions. We abandon these assumptions in a setup of two symmetric regions with imperfect complementarity between local public goods. For this particular aggregation, non-cooperative decentralization can achieve the social optimum, whereas cooperative centralization cannot.

Keywords: centralization; public goods; strategic delegation; weakest-link; voluntary transfers (search for similar items in EconPapers)
JEL-codes: C72 D72 H40 H70 H73 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2007-06, Revised 2007-06
New Economics Papers: this item is included in nep-gth, nep-pbe and nep-ure
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Citations: View citations in EconPapers (2)

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