The Decentralization Tradeoff for Complementary Spillovers

Martin Gregor () and Lenka Š Astná ()
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Lenka Š Astná: 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 2011/13, Working Papers IES from Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies

Abstract: We examine a symmetric two-district setting with spillovers of local public spending where a spill-in from the foreign spending is not a substitute, but a complement to domestic spending. Specifically, we assume production of two district-specific public goods out of two complementary district-specific inputs. We compare equilibria in non-cooperative decentralization and cooperative centralization for different spillovers, complementarities and cost-division rules, and control for the effects of strategic delegation and the feasibility of voluntary contributions to the input in the foreign district. We find that centralization welfare-dominates decentralization in most institutional settings and for a wide range of parameters, yet we can also identify necessary and sufficient conditions for decentralization to welfare-dominate centralization. The setup features three novelties: In the absence of transfers, welfare in decentralization increases in spillovers, strategic delegation in decentralization improves welfare, and centralized provision may be non-monotonic in spillovers.

Keywords: Spillover; Spill-in; Strategic complementarity; Decentralization theorem (search for similar items in EconPapers)
JEL-codes: H41 H73 H77 (search for similar items in EconPapers)
Pages: 28
Date: 2011-04, Revised 2011-04
New Economics Papers: this item is included in nep-pbe and nep-ure
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Related works:
Journal Article: The decentralization tradeoff for complementary spillovers (2012)
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