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American Economic Review: Vol. 99 No. 4 (September 2009)

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

Article Citation

Ogawa, Hikaru, and David E. Wildasin. 2009. "Think Locally, Act Locally: Spillovers, Spillbacks, and Efficient Decentralized Policymaking." American Economic Review, 99(4): 1206-17.

DOI: 10.1257/aer.99.4.1206

Abstract

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 policy-making 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. (JEL D62, H23, H73, H87, Q58)

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Authors

Ogawa, Hikaru (Nagoya U)
Wildasin, David E. (U KY)

JEL Classifications

D62: Externalities
H23: Taxation and Subsidies: Externalities; Redistributive Effects; Environmental Taxes and Subsidies
H73: State and Local Government; Intergovernmental Relations: Interjurisdictional Differentials and Their Effects
H87: International Fiscal Issues; International Public Goods
Q58: Environmental Economics: Government Policy


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