Interregional Negotiations and Strategic Delegation Under Government Subsidy Schemes
38 Pages Posted: 25 Oct 2017
Date Written: October 25, 2017
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: Suggested Citation