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

Authors: Ogawa, Hikaru; Wildasin, David E.

Source: The American Economic Review, Volume 99, Number 4, September 2009 , pp. 1206-1217(12)

Publisher: American Economic Association

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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 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.

Document Type: Research article

DOI: 10.1257/aer.99.4.1206

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