Think
Locally, Act Locally: Spillovers, Spillbacks, and Efficient
Decentralized Policymaking
by
Hikaru Ogawa School of Economics Nagoya University Nagoya Aichi 464-8601 JAPAN
and
David E. Wildasin Martin School of Public Policy and Department of Economics University of Kentucky Lexington, KY 40506-0027 USA
Abstract
We analyze models with interjurisdictional spillovers among
heterogeneous jurisdictions, such as CO_2 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 still result in
globally efficient allocation.
