Economics Research Institute Study Paper
Utah State University Department of Economics
We examine the noncooperative provision of an impure public good by regional governments in a federation similar to the European Union, where regional governments are Stackelberg leaders and the central government is a Stackelberg follower-a federation with decentralized leadership. The center redistributes income and provides budget-balanced lump-sum matching grants after it observes the regions' contributions to the impure public good. Imperfectly mobile workers react to regional and central governments' policies by establishing residence in their most preferred region. Despite the degree of labor mobility, we show that the allocation of the impure public good and the interregional income redistribution policy are generally efficiently in a federation with decentralized leadership.
Caplan, Arthur J. and Silva, Emilson C.D., "Impure Public Goods, Imperfect Labor Mobility, and Matching Grants in a Federation with Decentralized Leadership" (2004). Economic Research Institute Study Papers. Paper 285.