Chasing the Smokestack: Strategic Policymaking with Multiple Instruments

33 Pages Posted: 23 Jun 2003 Last revised: 14 Oct 2022

See all articles by Per G. Fredriksson

Per G. Fredriksson

University of Louisville - College of Business - Department of Economics; Institute for Corruption Studies

John A. List

University of Chicago - Department of Economics

Daniel L. Millimet

Southern Methodist University (SMU) - Department of Economics; IZA Institute of Labor Economics

Multiple version iconThere are 2 versions of this paper

Date Written: June 2003

Abstract

Empirical evidence suggesting that a considerable amount of horizontal strategic interaction exists amongst governments is important in light of recent devolutionary trends of many important public programs. The empirical approach in these studies typically relies on estimating reaction functions in a uni-dimensional policy framework, where a nonzero slope estimate is interpreted as evidence in support of strategic interactions. While this framework is a useful representation within certain contexts, it is potentially too restrictive; for example, in models of resource competition, localities may use multiple instruments in their recruiting pursuits, leading to potential strategic interactions across policy instruments. In this study, we first develop a simple theoretic construct that includes resource competition in a world of three-dimensional policy choice. The model suggests that while a zero-sloped reaction function may exist for any particular policy, this does not necessarily imply the absence of strategic interactions. We examine the implications of the model empirically using US state-level panel data over the period 1977-1994. The results suggest that important cross-policy strategic interactions exist, lending support in favor of the multi-dimensional framework, and indicate that uni-dimensional frameworks may present lower bound estimates of the degree of strategic interaction.

Suggested Citation

Fredriksson, Per G. and List, John A. and Millimet, Daniel L., Chasing the Smokestack: Strategic Policymaking with Multiple Instruments (June 2003). NBER Working Paper No. w9801, Available at SSRN: https://ssrn.com/abstract=418303

Per G. Fredriksson

University of Louisville - College of Business - Department of Economics ( email )

Louisville, KY 40292
United States

Institute for Corruption Studies

Stevenson Hall 425
Normal, IL 61790-4200
United States

John A. List (Contact Author)

University of Chicago - Department of Economics ( email )

1126 East 59th Street
Chicago, IL 60637
United States

Daniel L. Millimet

Southern Methodist University (SMU) - Department of Economics ( email )

Box 750496
Dallas, TX 75275
United States
214-768-3269 (Phone)
214-768-1821 (Fax)

HOME PAGE: http:\\www.smu.edu\~millimet

IZA Institute of Labor Economics

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Germany