Working Paper: CEPR ID: DP3465
Authors: Philippe Jehiel; Jacques-François Thisse
Abstract: This Paper deals with collective decision making within a group of independent jurisdictions. The right to choose the public policy is delegated from the central authority of one of the jurisdictions through a bidding procedure among the group members. We identify the following trade-off: competition among jurisdictions yields higher transfers to the government, but the outcome tends to be less efficient than what it is when jurisdictions negotiate prior to the decision-making process. We extend and illustrate the model by means of a public good game involving several heterogeneous jurisdictions.
Keywords: auction; confederation; jurisdictions; public good; spillovers
JEL Codes: D44; D62; H41; H70
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Competition among jurisdictions (H73) | Higher transfers to the central authority (H77) |
| Negotiation among jurisdictions (H73) | Lower transfers to the central authority (H77) |
| Competition among jurisdictions (H73) | Overall welfare (I31) |
| Cooperation among jurisdictions (F55) | Jurisdictions may be worse off (H73) |
| Bidding process (D44) | Less efficient outcomes (D61) |
| Winning jurisdiction reflects the highest valuation of its preferred policy (H73) | Equilibrium bids in a two-jurisdiction scenario (D44) |