Identifying the public goods allocation process: case of the North Atlantic Treaty Organization

Minoru Okamura ()
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Minoru Okamura: Aoyama Gakuin University

Empirical Economics, 2022, vol. 63, issue 3, No 17, 1707-1726

Abstract: Abstract This study first presents Nash–Cournot and Lindahl models predicated on the demand system to test whether the public goods allocation process is Nash–Cournot or Lindahl in the case of North Atlantic Treaty Organization (NATO) allies. The Pesaran–Deaton non-nested test is used. The results indicate that neither of these is supported in any NATO allies but the USA, and that the Nash–Cournot allocation process is supported only in the USA. Second, this study tests the relative explanatory power of these two models using the Vuong non-nested test. This test is useful when neither allocation process is supported. Testing results indicate that in small allies, the Nash–Cournot model has better explanatory power than the Lindahl model, whereas in large allies, the two models either have equivalent explanatory power or the Nash–Cournot model has worse explanatory power than the Lindahl model.

Keywords: Nash–Cournot; Lindahl; Non-nested test; Demand system (search for similar items in EconPapers)
JEL-codes: D74 H41 H56 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1007/s00181-021-02179-0

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