The Effect of Spillovers on the Provision of Local Public Goods

Abstract

This paper analyzes the provision of local public goods with positive spillovers across jurisdictions. If spillovers are symmetric, the noncooperative game played by jurisdictions admits a unique equilibrium, and an increase in spillovers reduces the total provision of public goods. Smaller jurisdictions always reduce their contribution, but larger jurisdictions can increase their contribution. When spillovers are asymmetric, equilibrium is unique if spillovers are low, while multiple equilibria exist for high spillover values. In the case of two jurisdictions, an increase in the flow of spillovers to one jurisdiction benefits agents from that jurisdiction but harms agents in the other jurisdiction. Beyond the case of two jurisdictions, the effect of changes in spillovers cannot be signed. An increase in the spillovers flowing to a jurisdiction can actually result in an increase in the supply of public goods by that jurisdiction and harm agents residing in it, while benefiting agents in the other jurisdictions. The results of the paper reveal the complexity of interactions that will plague the design of institutions for multijurisdictional local public good economies with spillovers.

Strategic Interaction and Networks

“…5 Bramoullé & Kranton (2007) contains a special case of this result, and Bloch & Zenginobuz (2007) show spillovers can lead to lower public good provision. 6 For instance, our approach can be used to study the leading public goods example in Bergemann & Morris (2008, 2009 for an arbitrary network.…”

The political economy of (De)centralization with complementary public goods

“…G j = e j + e j . 8 For ! +1 we have 'perfect complementarity' and, in the limit, equation (1) becomes G j =Minfe j ; e j g (referred as to the 'weakest-link'function).…”

“…For this reason, our model does not belong to the class of "aggregative games", where each player's payo¤ depends on her own action and the same aggregate of all players'actions (see, Corchón, 1994;Cornes andHartley, 2007a, 2007b; and Acemoglu and Jensen, 2013). 8 The denomination of 'perfect-substitutes'for = 0 is actually abusive. Indeed, even in this case, one unit of investment abroad does not entail the same marginal bene…t than when this unit is provided domestically because of the spillover parameter.…”

Networks of Many Public Goods with Non-Linear Best Replies

“…This question has been studied in detail for the case of a single public good. Several conditions have been established, whether the best replies are linear (see, e.g., Bloch and Zenginobuz, 2007;Ballester and Calvó-Armengol, 2010;Bramoullé et al, 2014) or non-linear (see, e.g., Rébillé and Richefort, 2014;Allouch, 2015). However, the more realistic case of several public goods has received much less attention.…”