Public Input Competition under Stackelberg Equilibrium: A Note

Yongzheng Liu and Jorge Martinez-Vazquez ()

Journal of Public Economic Theory, 2015, vol. 17, issue 6, 1022-1037

Abstract: This paper examines the Stackelberg equilibrium for public input competition and compares it with the noncooperative Nash equilibrium. Given two asymmetric regions, we show that under the Nash equilibrium the more productive region tends to spend more on public input, which results in this region attracting more capital than the less productive region. The comparison of the two equilibria reveals that the leader region obtains a first-mover advantage under the Stackelberg setting. This suggests that if regions interact with each other sequentially as in the Stackelberg equilibrium, then the regional disparity that is due to the heterogeneity of productivity is likely to be mitigated or enlarged, depending on which region performs the leadership role in the competition process.

Date: 2015
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Working Paper: Public Input Competition under Stackelberg Equilibrium: A Note (2014)
Working Paper: Public input competition under Stackelberg equilibrium: A note (2014)
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