Think Locally, Act Locally: Spillovers, Spillbacks, and Efficient Decentralized Policymaking

We analyze models with interjurisdictional spillovers among heterogeneous jurisdictions, such as CO₂ emissions that affect the global environment. Each jurisdiction's emissions depend upon the local stock of capital, which is interjurisdictionally mobile and subject to local taxation. In import...

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Bibliographic Details
Published in:The American economic review 2009-09, Vol.99 (4), p.1206-1217
Main Authors: Ogawa, Hikaru, Wildasin, David E.
Format: Article
Language:English
Subjects:
Allocative efficiency
Bargaining
Competition
Cooperation
Decentralization
Economic competition
Economic externalities
Economic models
Economic resources
Economics
Emissions
Emissions control
Environmental impact
Environmental pollution
Externality
Greenhouse gases
Industrial development
Jurisdiction
Local finance
Local government
Policy analysis
Policy making
Political economy
Preferences
Property taxes
Public goods
Public policy
Regional economics
Resource allocation
Studies
Subsidies
Taxes
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Summary:We analyze models with interjurisdictional spillovers among heterogeneous jurisdictions, such as CO₂ emissions that affect the global environment. Each jurisdiction's emissions depend upon the local stock of capital, which is interjurisdictionally mobile and subject to local taxation. In important cases, decentralized policymaking leads to efficient resource allocation, even in the complete absence of corrective interventions by higher-level governments or coordination of policy through Coasian bargaining. In particular, even when the preferences and production technologies differ among the agents, the decentralized system can result in globally efficient allocation.
ISSN:0002-8282
1944-7981
DOI:10.1257/aer.99.4.1206