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Interregional Negotiations and Strategic Delegation Under Government Subsidy Schemes

38 Pages Posted: 25 Oct 2017  

Ryusuke Shinohara

Department of Economics, Hosei University

Date Written: October 25, 2017

Abstract

We examine whether a strategic delegation problem in interregional negotiations can be solved by a governmental policy. As a strategic delegation problem, it is well known that when an interregional negotiation is delegated to representatives, each region strategically elects its representative, which results in inefficient negotiation outcomes. Here, we focus on a cost-matching grant, which is a kind of subsidy policy. We find that there is not necessarily an optimal cost-matching grant that can restore the efficiency of negotiation outcomes because the introduction of the grant generates a new kind of manipulation of breakdown outcomes. We further show that if a representative can be re-elected after the negotiation breaks down, then the breakdown outcome is coordinated. In this case, there is an optimal cost-matching grant that can achieve an efficient allocation through negotiation.

Keywords: Strategic delegation, Public project, Cost-matching grant, Lindahl price, Nash bargaining

JEL Classification: D62, D72, H41, H77

Suggested Citation

Shinohara, Ryusuke, Interregional Negotiations and Strategic Delegation Under Government Subsidy Schemes (October 25, 2017). Available at SSRN: https://ssrn.com/abstract=3058517

Ryusuke Shinohara (Contact Author)

Department of Economics, Hosei University ( email )

4342
Aihara-machi
Machida, Tokyo 194-0298
Japan
+81-42-783-2534 (Phone)

HOME PAGE: http://ryusukeshinohara.ehoh.net/

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