 Construction of facilities under asymmetric information: do constitutions matter ?Martin Besfamille and Jean-Marie Lozachmeur No 2002042, LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) Abstract: A country consists of two non-overlapping regions, each ruled by a local authority. The federal government plans to construct a facility in one of the regions. If the facility is constructed, it generates a social value in the host region and has spillover effects in the rest of the country. The federal government does not observe the local value (which can be high or low) because it is in fact the local authority's private information. To deal with this informational gap, the federal government designs an incentive-compatible mechanism, specifying if the facility should be constructed and a scheme of interregional transfers. But the federal government is constitutionally constrained to respect a given measure of both regions' welfare. The type of local misbehaviour is shown to depend crucially upon this minimum utility the central government must at least implement. Keywords: fiscal federalism; constitutional constraints; facilities; intergovernmental transfers; asymmetric information (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:cor:louvco:2002042 Access Statistics for this paper More papers in LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) Voie du Roman Pays 34, 1348 Louvain-la-Neuve (Belgium). Contact information at EDIRC. |
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