A Virtuous Circle of Governance Contests with Externalities

Sung-Hoon Park () and Jason Shogren

Sustainability, 2021, vol. 13, issue 14, 1-12

Abstract: Governments create contests to allocate resources to stakeholders, e.g., grants, contracts. The actions of these stakeholders can generate a positive externality for themselves—the contest winner can attract additional outside funding and donations from third-parties who want to jump on the winner’s bandwagon. Herein we examine the externalities arising from these contests created by governance and their impact on a virtuous circle of governance contests. Among various conditions that make governance virtuous, we focus on the equilibrium expected payoffs of stakeholders, the difference in them, and the rent-dissipation rates. Our study shows that the impact of externalities on the efficiency of governance depends on two key factors: (i) the choice of governance contests , the player-externality and the winner-externality, and (ii) the relative efficiency of stakeholders’ efforts.

Keywords: expected payoff; externality; governance contest; rent dissipation; virtuous circle (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2021
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