Common Agency and Coordination: General Theory and Application to Tax Policy

CEPR Discussion Paper Series No. 1436

Posted: 25 Sep 1996

See all articles by Avinash Dixit

Avinash Dixit

Princeton University - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Gene M. Grossman

Princeton University - Woodrow Wilson School of Public and International Affairs; Princeton University - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Elhanan Helpman

Harvard University - Department of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Date Written: July 1996

Abstract

We develop a model of common agency with complete information and general preferences with non-transferable utility, and prove that the principals' Nash equilibrium in truthful strategies implements an efficient action. We apply this theory to construct a positive model of public finance, where organized special interests can lobby the government for consumer and producer taxes or subsidies and targeted lump-sum taxes or transfers. The lobbies use only the non- distorting transfers in their non-cooperative equilibrium, but their inter-group competition for transfers turns into a prisoners' dilemma in which the government captures all the gain that is potentially available to the parties. Therefore, we suggest that pressure groups capable of sustaining an ex-ante agreement will make a commitment to forgo direct transfers and to confine their lobbying to distorting taxes and subsidies.

JEL Classification: D0, H2

Suggested Citation

Dixit, Avinash K. and Grossman, Gene M. and Helpman, Elhanan, Common Agency and Coordination: General Theory and Application to Tax Policy (July 1996). CEPR Discussion Paper Series No. 1436. Available at SSRN: https://ssrn.com/abstract=3349

Avinash K. Dixit (Contact Author)

Princeton University - Department of Economics ( email )

Princeton, NJ 08544-1021
United States
609-258-4000 (Phone)
609-258-6419 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Gene M. Grossman

Princeton University - Woodrow Wilson School of Public and International Affairs ( email )

300 Fisher Hall
Prospect Avenue
Princeton, NJ 08544-1021
United States
609-258-4823 (Phone)
609-258-1374 (Fax)

Princeton University - Department of Economics ( email )

Princeton, NJ 08544-1021
United States

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Elhanan Helpman

Harvard University - Department of Economics ( email )

Littauer Center
Cambridge, MA 02138
United States
617-495-4690 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Register to save articles to
your library

Register

Paper statistics

Abstract Views
1,606
PlumX Metrics