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Strategical interactions on municipal public safety spending with correlated private information

Chao Yang and Lung-Fei Lee ()

Regional Science and Urban Economics, 2018, vol. 72, issue C, 86-102

Abstract: We investigate interactions of public safety spending among spatially related local jurisdictions in a framework of simultaneous move game both theoretically and empirically. Incorporating the mobility of residents and externality of public safety services, it is found that the public safety spending of a municipal government can be negatively related to those of its neighbors, which is empirically supported by a general interaction model with correlated private information using the data on municipalities in North Carolina. In this case, strategic interactions induce a reduction of municipal public safety spending by 7.2404% on average and a local government will reduce its own spending by 0.0927 million dollars when one of its neighbors is expected to increase public safety spending by 1 million dollars, showing strong “free-riding” effects.

Keywords: Spatial correlation; Strategic interactions; Public finance; Fixed point; Numerical approximation (search for similar items in EconPapers)
JEL-codes: C31 C35 C57 (search for similar items in EconPapers)
Date: 2018
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DOI: 10.1016/j.regsciurbeco.2017.03.003

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